October 8, 2020
Do you know what to expect when you want to refinance your mortgage in order to cash in on the value of your home? Are you wondering how much money will you get in cash at closing time? These and other questions are important–knowing the answers before you commit or at least knowing how to arrive at those answers is crucial before you commit to the refi loan.
Here are some common questions about FHA Cash-Out Refinancing loan options you should know:
Do FHA Cash-Out Refinance Loans Cost The Same In All Housing Markets?
The short answer is no, and the reason for this is that all housing markets differ, lender standards differ, and your own personal needs and goals may affect the type of transaction you need.
For those applying for FHA cash out refinance loans in an area with rising property values, you may discover your home is worth far more (or in some cases less) than you might think. The valuation of the property is an important part in establishing the FHA cash-out refinance loan limit.
Why Is My Home Worth More Than It Would Be Elsewhere?
The level of demand for certain properties can alter their value, and property values have a lot to do with the types of comparable homes availble in the housing market where you want to buy. There are plenty of variables that affect how much your home is appraised for, and how much money you are able to get on an FHA cash-out refinance.
A “comparable” is a home that is similar to yours and used to determine what is typical in that housing market for your type of property. The appriaser will use “comps” to help establish the fair market value of your house.
If other properties have increased in value near you that are similar to your kind of home, it’s possible that such an upward trend may indicate that your house could be worth more now than it was before the upward trend.
Who Decides The Current Value Of My Home?
Cash-out refinance loans require an appraisal, as does any FHA loan transaction where the money is made available to the borrower. The appraisal process is considered a snapshot in time–it is used to determine what your home is worth on the market at the time of the appraisal.
Cash-out refinance loans require both a new credit check and appraisal; only after the appraisal can the lender make a determination as to how much loan you are eligible to apply for. The appraisal informs the lender’s decision on how much to approve for your refi loan.
How Much Cash Back Will I Get From My FHA Cash-Out Refinance Loan?
The amount of cash back to the borrower depends on some variables–how much money did it take to pay off your original mortgage? Closing costs may also affect the amount of cash back.
Any borrower who has made mortgage payments for a short amount of time may not get as much cash at closing as the borrower who has been making mortgage payments for much longer–you will have more borrowing power with an FHA cash-out refi loan if you have paid on your mortgage for a while.
If you have made at least six mortgage payments on your existing loan, you could (under FHA loan rules) be technically eligible for an FHA cash-out refinance loan. However, your lender may have more stringent requirements for the amount of time you must have made mortgage payments in order to qualify.
Borrowers who are tempted to refinance in the early days of the original mortgage may or may not be applying too soon; if you need a larger amount of cash back on the transaction it may be a good idea to delay your application until you have more payments made.
You can discuss your needs with a participating FHA lender to see what type of loan may be best for you based on the age of your current loan, the conditions in your local housing market and more..
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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