The most likely reasons for needing (or wanting) to buy out a partner or co-owner of a home are due to divorce or inherited property, but of course, other situations can arise. Most people do not have the cash on hand to simply buy the other out; or even if they do have that cash, it’s important to evaluate with a financial advisor the best course of action. SO – if you are looking to use the equity in the home to buy your partner out, then you are in need of securing a cash out refinance.
A cash out refinance is exactly as it sounds: Refinancing so you can cash out and tap into some of your home’s equity. Cash out refis are considered more risky than a “rate and term” (no cash out) refinance and therefore carry a higher interest rate. But here’s the good news when it comes to a buyout:
Even though you’re taking cash from your home’s equity, if you can document the divorce decree or buyout agreement, it is not considered cash out and you will benefit from a lower interest rate. Do note that some lenders will have an overlay in this guideline allowance and may still hit you for a cash out refinance, so if you are in this situation, definitely ask about it. As a mortgage broker, I work with multiple different lenders and therefore would have the ability to secure a mortgage with a lender that has no overlays and will treat this buyout as no-cash out.
