January 3, 2020
Do you know what to expect when you want to refinance your mortgage in order to convert part of your home’s value into cash?
Is there a difference between cash-out refinance loans in Illinois and California? How much money will you get in cash? These and other questions are important to answer in advance.
Are FHA Cash-Out Refinance Loans The Same In All Housing Markets?
No. All housing markets differ. And that’s a theme you’ll see repeated in this article; if you are applying for an FHA cash-out refi loan in an area with rapidly increasing property values, you may discover your home is worth far more than in a housing market that has experienced a plateau in those rising values.
Why Does My Lender Require An Appraisal?
Property values will vary nationwide. The variables that can affect how much money you are able to get on an FHA cash-out refinance loan include how your home measures up to other, similar properties known as comparables in the area.
A “comparable” is an industry term used to describe a home that is similar to yours and used to determine what is typical in that housing market for your type of property.
The new appraisal will determine the market value at the time the loan is being processed rather than what it was worth at the time you purchased it.
Current Value = Appraisal Required?
Cash-out refinance loans require an appraisal; this process is used to determine what your home is worth on the market in current conditions. There is no such thing as an appraisal-free cash-out refi loan.
How Much Cash Back From An FHA Cash-Out Refinance Loan?
The amount of cash back to the borrower depends on several variables. Those may include how much is owed on the existing loan and how much is left over after the original mortgage is paid off.
The borrower who has made mortgage payments for a short amount of time may not get as much cash as the borrower who has been making mortgage payments for some time.
Additionally, add-ons to the mortgage may require more cash at closing time depending on what you choose. Talk to your lender about the conditions that would result in the most money back at closing.
If you have made six mortgage payments (minimum) on your home loan, you may be technically eligible for an FHA cash-out refinance. However, it’s good to ask yourself if applying soon after your original mortgage may (or may not, depending on property values and other factors) be too soon.
The answer to, “Should I cash-out refinance?” depends greatly on whether or not you need more cash back. If cash back at closing time is not your main priority, consider a different type of FHA refinance loan instead even if it’s just to compare features of each loan.
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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