Instant Equity Refinance Tips

When you purchase a newly built home, you typically sign the purchase contract several months in advance.

The purchase price for the property at that time is usually at prevailing market rates.

If the market value of the property rises significantly before the property is completed, your house will be worth more than you pay for it when you move in.

This is built in equity.

You may be able to use this equity to refinance to a lower payment.

Refinancing

This means that after you move in, you can opt to refinance again for a new loan. Some lenders will allow you to use your current appraised value the day after purchase. These lenders will typically only offer a "rate & term" refinance – meaning they will give you a loan with a lower payment but you can’t cash out the equity.

For example, you can purchase a new home with 100% financing on your contract price, and then use your additional equity to refinance to a lower payment.

An example of this would be purchasing a new home with a contract price of $350,000 but the day of the actual purchase (after it is built) the home is worth around $400,000 at market value.

This obviously means you have to go through the expense of another loan. Sometimes these additional costs can be added into your new loan.

Cash out

Most banks will not allow you to "cash out" your equity until you hold the new home for a year, although some banks only require 6 months. The ones that only wait for 6 months usually offer higher interest rates.

Of course you may be able to cash out by just selling the property at market rates.