Do you need to pay bills, college tuition, or other expenses? Do you need to make a large purchase or payment, such as buying a car or paying for a renovation or vacation? You may be able to access the equity in your home to help cover the costs of these expenses! Read on to learn more about FHA Cash-Out Refinances.
An FHA Cash-Out Refinance is a product available to qualified homeowners. Through the Federal Housing Administration (FHA), homeowners can borrow up to 80% of their home’s value! You have to use the cash out refinance loan to pay off your current loan (if you have one), but the more equity you have in your house, the more cash you could potentially access!
Say your house is valued at $300,000. If you don’t have a loan balance, you could get an FHA Cash-Out Refinance for up to 80% of that value, which is $240,000. If you have a loan balance of $100,000, you could access up to $140,000 in cash (which is 80% of your home’s value minus your loan balance of $100,000). This money could go towards paying debt, education expenses, house repairs, and more!
Benefits of an FHA Cash-Out Refinance
- Allows you to borrow a large amount of funds.
- You can use these funds for whatever you wish after paying off your current loan.
- You can repay over a term of usually 15 or 30 years.
- Generally has lower rates than other types of loans.
- By taking equity out of your home, your overall debt will increase, and your monthly payments could potentially be higher.
- You risk defaulting and losing your property if you stop making payments.
- There’s a chance home values could decrease, which could decrease your equity.
- FHA loans and FHA Cash-Out Refinances require mortgage insurance.
- FHA Cash-Out Refinances have closing costs associated with them.
To qualify for an FHA Cash-Out Refinance, you must meet the following requirements:
- The property must have been your primary residence for at least 12 months
- You have to have owned the property for at least 12 months
- Your mortgage payments must have been on time for the prior 12 months, or the life of the mortgage (whichever is shorter)
- You cannot borrow an amount greater than the limit for your county
- You must have a credit score of at least 500 (the lender you use may have a different minimum limit)
- You cannot have a debt-to-income ratio of more than 50%
- You will need to have your property appraised (your lender will arrange this)
FHA Cash-Out Refinance Vs. Conventional Cash-Out Refinance
The differences between an FHA Cash-Out Refinance and a conventional cash-out refinance include:
- FHA has a lower credit score requirement (500 for FHA versus 640 for conventional).
- FHA is only for primary residences, while conventional can be for second homes or investment properties as well as primary residences.
- FHA may have slightly higher rates than conventional.
- FHA requires mortgage insurance, while conventional does not if the borrower has at least 20% of equity in their home.
- FHA also requires any coborrowers to also be an occupant of the property.
Can I get an FHA Cash-Out Refinance if I have or had a conventional loan? Yes! If you qualify, you can get an FHA Cash-Out Refinance whether you have or have had an FHA loan or a conventional loan.
Is an FHA Cash-Out Refinance right for you? If you would like some extra funds, are looking for a low-interest rate loan, and meet the requirements, you might benefit from an FHA Cash-Out Refinance! Speak with a loan specialist today to discuss your options!