April 9, 2015
A reader asks, “Our home is in trust, and my mother-in-law has signed a quit claim deed. My husband was in a hit and run motorcycle accident 3 years ago this coming June. Due to his inability to work for 4 months we struggled with payments and our credit is horrible. We would like to get a loan on our house so we can pay off a home equity loan, and multiple collections.”
“Our home is valued at approx. $250,000, and we would like to get a loan for half of that so we can get out of debt and make some improvements to our home. My husband has credit scores of Experian 558, Equifax 517, and Transunion 491. Is it possible to find an FHA lender that would be willing to give us a loan for 1/2 the value of our home? My husband has worked for the same company for 9 years and grosses $72,000 annually. If you could please get back to me and give us an idea of what our chances of obtaining a loan are, I would be very grateful.”
FHA cash-out refinancing loans are available to qualifying borrowers, but prior to any cash coming to the borrower the original mortgage loan (if it has not been paid off already) must be paid in full with the new loan (plus any associated fees and expenses with the loan). The remainder of the cash, where applicable, goes back to the borrower for “any purpose acceptable to the lender”.
Additionally, FHA loan rules state:
“The borrower must be current on the loan being refinanced for the month due prior to the month in which he/she closes the refinancing, and for the month in which he/she closes.”
“Example: If the borrower is closing on April 8, he/she must have made the March payment within the month of March, and the April payment by closing. The April payment may be included in the payoff amount at closing. Lenders are not permitted to allow borrowers to “skip” payments when refinancing. When the new mortgage amount is calculated, FHA does not permit any mortgage payments “skipped” by the borrower to be included in the new mortgage amount.”
FHA home loan refinancing allows the borrower to refinance a home that is already paid off, for up to 85% of the equity in the home.
In all cases, for cash-out refinancing the borrower must credit qualify. You may find that lenders are not willing to offer cash-out refinancing in cases where the credit score is lower than 62o.
Do you have questions about FHA mortgages or refinance loans? Ask us in the comments section.
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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