FHA cash-out refinance loans are a great way to cash in on the value of your home, but this FHA refinance option has some specific rules about occupancy and how it affects your eligibility for cash out.
The FHA loan handbook, HUD 4000.1, begins by explaining that cash-out refi loans are only for owner-occupiers.
“Cash-out refinance transactions are only permitted on owner-occupied Principal Residences.”
Furthermore, owner-occupiers are the only ones who can have their income counted when it comes time to qualify for an FHA cash-out refinance.
“Income from a non-occupant co-Borrower may not be used to qualify for a cash-out refinance.”
That’s an aspect of FHA cash out loans that isn’t discussed too often, but it is an important one to know. There are other requirements-in most cases, a borrower must have occupied the property for a specific length of time before applying for an FHA cash out loan.
“The Property securing the cash-out refinance must have been owned and occupied by the Borrower as their Principal Residence for the 12 months prior to the date of case number assignment.”
This does not apply for borrowers who have inherited a property they are refinancing with an FHA cash-out refinance, except in cases where the borrower chooses to rent the home out.
In such cases, FHA loan rules still require a minimum period of occupancy by the owner prior to application time.
“If the Borrower rents the Property following inheritance, the Borrower is not eligible for cash-out refinance until the Borrower has occupied the Property as a Principal Residence for at least 12 months.”
And yes, the lender is required to properly document the owner’s occupancy, as we learn from HUD 4000.1:
“The Mortgagee must review the Borrower’s employment documentation or obtain utility bills to evidence the Borrower has occupied the subject Property as their Principal Residence for the 12 months prior to case number assignment.”
If you aren’t sure how these FHA loan rules affect your refinance loan, talk to your loan officer about your concerns. Additional lender requirements may also apply, so it’s always best to ask the lender what standards may affect your new loan.