Did You Know?

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.

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

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Reasons for FHA Refinancing

Interest rates started to decline in 2019 and still seem considerably low. The average rate for a 30-year, fixed rate home loan has fallen from 4.94% in November 2018 to 3.13% in October 2021. A point drop in your interest rate could translate to huge savings with each monthly payment

What You Need to Know About the FHA Rehab Loan

The FHA Rehabilitation Loan program allows lenders to cover the purchase or refinance, as well as the rehabilitation of the home, as part of a single mortgage. This loan can be used to finance a property that is at least one year old with a total cost of repairs amounting to at least $5,000

The FHA Streamline Refinance Mortgage

The FHA Streamline Refinance allows mortgage holders to refinance their home loan without going through the process of second appraisal. Since this is a step that was completed with the first FHA mortgage, the FHA waives it for the refinance

Benefits of an FHA Loan

Making the decision to buy a house is a big one, followed by the choice of which house to buy. The next biggest decision you make is going to be the type of home loan you need to go through with the purchase. One option for financing your home is an FHA loan.

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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