December 27, 2021
How prepared are you to apply for an FHA Cash-Out Refinance loan? Some borrowers don’t realize that some FHA refinance options require more preparation than others.
FHA Cash-Out loans have an FHA-required credit check and appraisal; saving for these expenses and your closing costs is a smart idea to maximize your borrowing power and keep your monthly payments lower.
Financing your allowable closing costs may hike your mortgage payments; smart borrowers try to decide in advance how high the payment can go before it is too high.
What does it take to qualify for an FHA Cash-Out Refinance and get your application approved? Aside from the basics like FICO scores and your record of on-time payments, you will need to have lived in the home as your primary residence for at least a full year (with some exceptions, ask your loan officer).
If your FHA loan case number would be assigned on or after your one-year anniversary of living in the home, you can apply with confidence that you have met the requirement.
If you have not been living in the home a full year when the FHA loan case number would be assigned, you likely won’t be approved.
FHA loan rules and lender requirements also apply regarding your record of on-time mortgage payments. To qualify for any refinance loan that allows cash back to the borrower you will have to be careful not to have ANY late or missed payments on your mortgage in the 12 months leading up to the application.
In general, you should expect your lender to require at least 20% equity in your home in order to technically qualify for FHA Cash-Out Refinancing. But you should also expect to have 20% equity in the home leftover when the refi loan is done.
You cannot apply for a refi loan bigger than your current one without any specific upper limit–the equity requirements in this area serve as a limit on the loan amount.
The interest rates you are offered on an FHA Cash-Out refi loan may be lower than you find with some conventional equivalents; it’s important to remember that FHA refinance loans are backed by the government which allows the borrower to apply for loans that may cost less over time thanks to that potentially lower rate.
If you need to get a Cash-Out loan but want to save as much as you can on the refi over the lifetime of the mortgage, pay any FHA Up-Front Mortgage Insurance premiums in cash at closing time rather than rolling the cost into the loan.
Remember that FHA Cash-Out loans can be used to refinance existing FHA mortgages and non-FHA mortgages alike.
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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