Does Appreciation Add to Equity in a Refinance?

[Curtis Lewis]

Let's say I buy a home for 100k with a 20k down payment. A year later that same home is now worth 150k and I have since put 10k into the principle on the loan.

Would I now have 80k in equity?

If i refinanced, would i be able to pull that 80k out?

Or if I just refinanced into another conventional loan just with a lower interest rate, would that 80k go towards the refinance or strictly what i have actually paid to the home?

Basically am I refinancing with 80k or 30k?

[Andrew Gingerich]

@Curtis Lewis I used to do math they way you are trying to do it. But, I think it's best to do the math they way they lender will. 

Let's assume your house appraises for 150K (Like @Joe Villeneuve playing along). They will likely lend on 70-75 LTV or loan to value on a rental house. They will do higher LTVs on a primary residence. Let's assume a rental (the math is the same however for a primary res, just use a higher LTV). Note, LTV is just the difference of what they want as a down payment or kept in the loan as equity (your skin in the game). SO if LTV is .75 they want you to keep 25% of your money in the loan. Okay here the math:

150k x .75 = $105,000

So 105K is the max they'd give you in a new loan. Now you have to pay off your original loan. It looks like you have about 80K outstanding (assuming you haven't paid the loan down). In one year, at a reasonable interest rate, and a 30 year loan, you've paid your note down to about 78,500, via monthly payments

Subtract your 105K-78.5K to get what you could pull out. 

=26.5K returned to you.

So in theory you get all your money back (your original downpayment) and a little over half of your 10K in rehab costs. Assuming the house appraises for 150K.

Keep in mind, you've not calculated the costs to originate the refinance, appraisal, recording fees, etc (all the closing costs). So you'll not likely end up with 26.5K after cashout... probably 22-23K when you've paid for all your closing costs.

Feel free to PM me if you have questions or need help doing the math with more specific numbers.

Best, 

Andrew