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An FHA Cash-Out Refi lets you to take out a second mortgage on your home. It pays off your existing loan and lets you borrow against your existing equity.

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FHA Cash-Out Refinance

FHA Cash-Out Refinance

An FHA Cash-Out Refinance (also called a Cash-Out Refi) can help you in two ways. It can reduce your interest rate and monthly payments, and help you use some of the equity you’ve amassed in your home already. This type of FHA loan allows you to take out a new mortgage and pay off your existing loan and borrow against your equity.

How it Works

The FHA Cash-Out Refinance allows current FHA borrowers to refinance their home for up to 80% of the home’s current value. With a Cash-Out Refinance, you are essentially signing up for a second mortgage. It has a larger principal amount that is used to pay off the first mortgage and allows you to keep the difference.

Who's it For?

All FHA borrowers need to meet certain eligibility requirements before qualifying for a Cash-Out Refinance. There needs to be proof showing that the home being refinanced is the borrower’s primary residence, and that they have lived in the home for upwards of 12 months. All mortgage payments during that year must be made on time.

Borrowers must have a loan-to-value ratio of 80% or less, and a minimum credit score of 500. FHA’s standard minimum credit score is 580, but with at least 10% equity in the home, borrowers are allowed credit scores a low as 500. They must also have a debt ratio no higher than 50%.

It’s important to remember that this is still an FHA loan, which means it must adhere to the FHA’s lending limits. FHA Refinance loan limits are typically set at 65% of the national conforming loan limits for single-family homes in most U.S. counties.

Benefits of an FHA Cash-Out Refi

If you’re already a homeowner in the middle of your paying back your mortgage, refinancing your loan with an FHA Cash-Out Refi can work out to your benefit.

You still get to take advantage of the FHA’s lenient requirements, including the low credit score requirement and higher maximum deb ratio. You can use the equity you’ve built on your home for many different purposes, including home improvements projects, higher education expenses, consolidating debt, or medical emergencies. If you are making improvements to your home you can use the mortgage interest deduction on 100% of the interest paid on the new loan amount.

Remember that you don’t have to be an existing FHA borrower to refinance with an FHA Cash-Out Refi. Borrowers with existing conventional mortgages are also eligible for this type of refinance.

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About the One-Time Close Constuction Loan
A Cash-Out Refinance lets you apply for a second mortgage with a larger loan amount, to pay off the first mortgage and also get some cash in-hand.
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FHA Loan Articles

Is it the Right Time for an FHA Refinance?

With historically low interest rates, the mortgage industry has seen a sharp uptick in refinances. Taking advantage of the current market might be in your best interest and could lower your monthly payment significantly. Don’t forget that refinancing a mortgage comes with closing costs.

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The fact is that repairs and renovations to your home cost a lot of money. Luckily, the FHA has an option for those with fixer-uppers on their hands. The FHA 203(k) Rehabilitation Mortgages allows borrowers to finance the funds for renovations to a home.

Streamline Your FHA Loan Refinance

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Do I Need an FHA Refinance?

Borrowers can choose to refinance for several reasons, but it comes down to prioritizing different benefits. One homeowner may want the lowest possible monthly payment, while another might want the shortest possible term for their loan.

What Homebuyers Should Know About Appraisals

A key step in the mortgage process is the home appraisal. In the case of home purchase or refinance, this is a task that is almost always required by the lender, and it is important that potential homebuyers understand what, how, and why of a home appraisal.  

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When buying a home, you have a list of things you need to do. Get pre-approved, arrange for a home inspection, and a few other tasks. One important thing on that list is shopping for homeowner’s insurance.


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