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Ask an Expert: How much cash can I take out when I refinance? Do I have to tell the co-op board why I need it?

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Q. I want to refinance my mortgage to take cash out for some unexpected personal expenses. 

How much cash can I take out? Does my board have a right to know how I plan to spend the money? Is there a chance they may not approve my refinance if I refuse to tell them? 

A.  Your board has a right to know what you intend to do with the money, say our experts. But they don't necessarily care.

"The first thing to do is to obtain the co-op's rules for financing," says property manager Michael Wolfe of Midboro Management, as "there typically is a limit to the amount of financing you may obtain."

For example, he says, if your co-op has a 75% loan-to-value rule, and your apartment is appraised for $1 million, your board would allow you to borrow up to $750,000.

Many boards allow you to refinance your existing loan up that amount--and take out in cash the amount by which your new loan balance exceeds your old one--as long as your monthly payment does not change.

"If you are within those limits and sign a recognition agreement--an agreement between the lender and the co-op that the co-op will notify your lender if you are in arrears on your maintenance charges--there should be no questions asked about why you are taking cash out," says asset manager and real estate broker Roberta Axelrod of Time Equities.

Other boards require a much fuller application as a matter of course or if your monthly mortgage payments will increase.

"They require a personal financial statement, and maybe even tax returns,  to consider your overall financial picture," says property manager Thomas Usztoke of Douglas Elliman Property Management.  "If your financial state suggests a potential financial problem for the co-op, you may be asked for more financial information, be approved for a lower amount, or turned down."

In addition to questions about your finances, "the board can ask what the money is to be used for and many other questions about your submission, and they may reject your request if you do not respond to their questions to their satisfaction," says Wolfe.

Renovating an apartment, paying for college tuition, paying off outside debt, and purchasing a second home are among the more common stated reasons for taking cash out, says Wolfe. 

However, a gambling debt or a downpayment on another home that would create a second mortgage could  "create a stir," he says.
 
Your lender will also probably want to know why you are refinancing, says Robbie Gendels, a senior loan officer at National Cooperative Bank in Manhattan.  
 
"The question is asked on the application, but if it is a legitimate reason--like lower interest rates, college tuition, debt consolidation, or renovation--I have never had the bank ask for more information," she says. Nor, says Gendels, has she ever "had a board deny a cash-out refi."
 
Bear in mind, however, that interest rates on cash-out refinancings can be higher, depending on your credit score and the loan-to-value ratio of your loan,  says Gendels.
 

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