The cash-out option for USDA streamline-assisted refinancing sounds restrictive at first. You might not have as much freedom to do with that money what you want, but that actually works out to be more helpful for you. If you want to get repairs done or even build on USDA loan–purchased land, the cash out keeps your costs in line.

What Is a Cash Out?

The cash out is the USDA equivalent of a home equity loan. In a regular home equity loan, as you pay down your mortgage, you gain equity and can borrow money to use for repairs and improvements on the home—or for other things, depending on the type of loan. With the USDA cash out, you can use the money only for home repairs, improvement, or building.

Only the Exact Costs Are Taken

If you take out a home equity loan, you can take out an amount that will cover various costs, but it may not be exact to the penny. With the USDA cash out, since the money is used only for the specific repairs and construction, you're not taking out any more than you need. That saves you a bit on interest payments over time.

Payment Is Direct

Any money from the cashout is paid directly to the companies that did the work. So, if you had your roof replaced, the bank would pay the contractors directly instead of sending the money to you first and having you pay the contractors. The benefits of this are many:

  1. It cuts out a step and thus cuts down the time it takes to pay the contractors. You don't have to worry about missing payments or sudden changes because that is all between the bank and the contractor.
  2. It may help nudge the contractor to finish on time as all repairs have to be completed within a year. The contractor wants that money, so having that deadline could be helpful. Something like repairing a roof isn't going to take long, but if you're making massive repairs and upgrades, those can take a while.
  3. It may help rein in costs. Again, the contractor wants the money. If the loan is preapproved for a specific amount, the contractor may be more careful about giving an accurate quote and not letting costs get out of hand (this can happen with even very good contractors, by the way).

Your bank can help you navigate the cash out options. Restrictions have their purpose, and in this case, that purpose is to ensure the most efficient use of the money.

For more information about cash outs and wholesale mortgages, contact a loan and financing professional near you.