June 19, 2018
Do you want to get money out of your home with an FHA Cash-Out refinance loan? Need shore up your rainy day fund or pay down certain kinds of debt?
Many borrowers want to do this but aren’t sure if they can use the funds from such a loan for the purposes they have in mind. Fortunately, FHA loan rules don’t specify approved or unapproved uses for the money you get when you refinance using a Cash-Out loan.
The FHA Loan Handbook, HUD 4000.1, describes FHA Cash-Out Refinance loans as follows:
“A Cash-Out Refinance is a refinance of any Mortgage or a withdrawal of equity where no Mortgage currently exists, in which the mortgage proceeds are not limited to specific purposes.”
That is good news for borrowers who have been in their homes for the minimum amount of time required by FHA loan rules to become eligible to apply for a cash-out refinance loan.
HUD 4000.1 states, “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.”
Additional lender requirements for that minimum time in the home may also apply.
If you’re thinking about cashing in on rising property values in your area with a cash-out refinance, it’s good to do some research on market values in your area and have a conversation with your lender about the right time to apply.
Some housing markets are increasing in value at any given time, while others may be decreasing at any given moment depending on factors such as the economy, new laws that affect real estate, and other factors.
One thing that is very important to remember about FHA cash-out loans is that there is an on-time payment requirement. HUD 4000.1 instructs the lender that the borrower must have made all mortgage payments in the last 12 months on time.
“The Mortgagee must document that the Borrower has made all payments for all their Mortgages within the month due for the previous 12 months or since the Borrower obtained the Mortgages, whichever is less.”
It’s best to wait if you do have a missed or late payment on your record until the 12 month rule is satisfied for best results.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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