July 10, 2020
Are you looking at the current low mortgage loan interest rates and wondering about your cash-out refinance loan options? If you are a homeowner looking for an FHA cash-out loan, you should know that you don’t have to have an existing FHA mortgage to refinance a loan with an FHA cash-out loan.
No matter which type of home loan you are looking to refinance, there are rules and requirements you should know–some refinance loan options are better than others depending on the purpose of your loan.
Rehab And Refinance
For example, some borrowers want to rehab a home while refinancing it–there is a separate FHA refi loan for that purpose, though the loan proceeds from the FHA 203(k) Rehabilitation Refinance loan can only be used for approved purposes where cash-out refinance loan funds can be used for “any purpose” acceptable to the lender.
In general, the FHA loan program offers a variety of refinance loan types including cash-out refinances, no cash-out refinances (Rate and Term refinance, Simple Refinance, and Streamline Refinance options).
The FHA loan program also includes, as mentioned above, refinances for rehabilitation or repair (Section 203(k).
Of the options discussed above only the FHA cash-out refinance loan option permits cash back to the borrower.
Refunds
Borrowers should know that all FHA mortgage loans permit cash back to the borrower in the form of a refund for expenses paid for up front but later financed into the loan amount.
But there is a difference between cash back to the borrower and a refund.
FHA 203(k) refinance loans for rehab and repair will include funds placed in escrow–this money is disbursed for the rehab project, but only for the specific costs of the work and other approved expenses.
Credit Scores And More
Cash out loans generally have stricter credit requirements than for no-cash-out loans; credit score issue isn’t the only thing you’ll want to pay attention to when preparing for the application.
You will also want to pay attention to your debt ratio—work on reducing the amount of monthly debt you pay compared to your income.
FHA Cash-Out Refinancing provides cash back to the borrower but there is a maximum loan-to-value ratio (LTV).
FHA purchase loans are offered to qualifying borrowers with an LTV of 96.5%, while FHA cash-out loans are for an LTV of 80%. That LTV is calculated based on the current fair market value of the home, which means an appraisal will be required.
When You Can Apply
For FHA cash-out loans, you may be required to make a minimum amount of on-time payments consecutively–between six months and 12 months depending on circumstances. Requirements may be different for those who want to refinance a home they have already paid off.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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