How to Refinance a House That Has Been Paid Off

A homeowner who is getting a mortgage on a home that is paid off is doing so for only one reason, and that is to pull equity — that is, money — out of the transaction. In recent years, reverse mortgages (with no monthly payment required) have become popular among homeowners over the age of 62, but other homeowners can qualify for a traditional cash-out refinance.

Get a free credit report at to verify that the information on your record is accurate. Your credit rating and scores may determine the type of loan you apply for (conventional or FHA) as well as what kind of interest rate you are able to get.

Decide on the dollar amount of the loan you want and set up an appointment with a lender to discuss current rates, programs that fit your needs, the reasons for taking out the loan and how much you would qualify for. For debt consolidation, present all statements from creditors to the lender. Once all of your questions have been answered, apply for the loan.

The lender will order an appraisal of your home to determine its market value. Provide the lender with insurance documents and the name of your attorney or title company. The lender will then give you a projected date for closing on (securing) the loan. Contact your insurance company to inform them of the loan process, as a new loan amount could cause your premiums to increase. You'll also have to decide whether you will continue paying insurance directly or have the mortgage company escrow your insurance and taxes. Ask if an insect-infestation clearance letter or a survey is required.

Stay in touch with your lender to follow up on potential missing documents and to find out the appraised value of the home as soon as it is available, as it may determine whether or not you get the loan. During this process time, do not open new lines of credit or pay off debts, as this could decrease your credit scores, which could lead to your loan being turned down.

If your appraisal is satisfactory and you qualify for the loan, request a preliminary copy of your closing statement to be aware of the costs you will be incurring. Go to the closing, ask any questions you may have and sign and date all documents. You have officially closed your loan, but federal law gives you three business days to change your mind.


  • Credit scores are very important, so do everything you can to pay bills on time. In a debt-consolidation refinance, do not skip a payment if the closing is running late.


  • Shop around for a lender, and if a company quotes you a low rate over the phone, tell them you want to lock it in that day. If they won't, then they most likely are just trying to get you in the door. Not all lenders that offer conventional loans are approved to offer government (FHA or VA) loans. Don't feel forced into a conventional loan if FHA serves your needs better.

About the Author

Joey Campbell spent eight years in real estates sales and property management. She has been active in residential and commercial mortgage for the past 23 years in the Southeastern U.S. Campbell has attended hundreds of seminars, and has written and conducted workshops on subjects such as credit, debt excelleration and prequalifying for residential mortgages.