FHA Cash Out Refinance
Homeowners invest in their properties and there comes a time when this investment can pay off. Refinancing with FHA home loans can enable you to make the most ofthe equity in your home. If you own a home and are still paying the mortgage, chances are you are looking for refinancing options, to lower the mortgage payments and make home buying more affordable. FHA offers a number of attractive refinancing options which includes FHA cash-out refinance.
FHA Cash-Out Refinancing
The Federal Housing Administration offers three different kinds of refinancing loans, namely FHA streamline refinance, a cash-out FHA refinance and an FHA replacement loan. Each of them have their own benefits and qualifying requirements.
With FHA cash-out refinancing, borrowers can get cash in hand. In order to make the most of the refinancing, it is best to refinance the mortgage after you’ve built a considerable amount of equity in your property. If you had purchased the property 1 year prior to refinancing, you would be eligible to refinance the existing mortgage up to 85% appraised value along with allowable closing costs.
Requirements for FHA Cash-Out Refinancing
Initially borrowers were able to get a cash-out refinancing amounting to 95% of the property’s loan-to-value amount, but due to the housing bust, the lenders tightened the guidelines and at present borrowers can get 85% of the property’s loan-to-value amount.
To qualify for FHA cash-out refinancing, the borrower must meet the below mentioned criteria:
- The property must be owner occupied and not used as an investment property
- The property should be purchased at least 12 months prior to application of the new loan, in order to use the new appraised value.
- Borrower should have a good payment history, with no payments more than 30 days late.
- The new mortgage payments due to the increased loan value should be within the debt-to-income ratio of the borrower
Initially, there were no credit requirements for FHA refinancing, but the recent economic meltdown lead to changes in the guidelines. Now no loan would be sanctioned for borrowers with credit scores lower than 500. If you are considering a FHA cash-out refinance, check with your lender how much credit score is required to qualify.
Benefits of FHA Cash-Out Refinancing
There are many benefits of the refinancing programs offered by FHA. With FHA cash-out refinancing, the major benefit is that the borrower gets a lot of cash in hand. This can be used for various purposes like:
- Education cost
- Home improvement
- Purchasing a car or paying off an auto loan
- Paying of credit card balances
- Saving for the future
In addition to getting cash in hand, you can also lower the interest rates or change the loan terms. You can change from a 30 year loan term to 15 year term or convert an adjustable rate mortgage into a fixed rate mortgage.
Compared to conventional cash-out refinancing, qualifying for FHA cash-out refinancing is easier since it has flexible qualifying guidelines.
FHA Cash-Out Refinancing Guidelines
To qualify for FHA cash-out, you must satisfy the following guidelines:
- Income: Borrowers must have sufficient income to bear the new mortgage payments. Borrowers need to verify their income by submitting last 2 pay stubs, W2 forms for the past 2 years AND two most recent filed federal income tax returns, if required.
- Appraisal: To qualify for FHA cash-out refinance, a new appraisal report is necessary. The maximum allowable financing is determined based on the appraisal report – which is 85% of the appraised value.
- Assets: asset verification is not required to qualify for FHA cash-outs.
- Credit: While there are no strict guidelines regarding the credit requirements, you need to meet the lender requirements of minimum credit.
FHA cash-out refinancing is the best option when you are in need of cash in hand. This is the most affordable way to borrow money at low interest rates. If you’re interested to know more, get in touch with our home loan specialists today!