December 8, 2021
Are you thinking about refinancing your home in 2022? There are several options to choose from including FHA cash-out refinancing.
FHA Cash-out refinance loans are an option for those who have used the home as their primary residence for the last 12 months as of the assignment of the FHA case number.
That means that FHA cash-out refi loans are not allowed for investment properties, second homes, vacation homes, etc. If you don’t plan to use a property as your home, the home may not eligible for many FHA loan options.
There is one exception–those who inherit property may refinance it without a minimum occupancy requirement. There is one caveat according to the FHA Single Lender’s Handbook:
“In the case of inheritance, a Borrower is not required to occupy the Property for a minimum period of time before applying for a cash-out refinance, provided the Borrower has not treated the subject Property as an Investment Property at any point since inheritance of the Property.” (emphasis ours).
That means if you have rented out a residential property you inherited, you cannot apply for an FHA cash-out refinance loan until you have lived in the home for a minimum of 12 months.
FHA cash-out refinance loans require you to credit-qualify. For best results, you should treat this type of loan exactly the way you did your original purchase loan. Be proactive about managing your credit, monitoring your credit scores, and lowering your debt ratio.
You may wish to consider how to pay your loan costs as early as possible. If you plan to finance the allowable closing costs into your new loan you should consider anticipating how much that will increase your monthly mortgage payment. In some cases, it may be better to save a bit longer and try to pay those upfront costs in cash.
The reasons you apply for cash-out refinancing may vary but it’s smart to consider the purpose of your loan. Are you thinking about using your cash-out option to pay for upgrades and improvements to the home? That’s a smart move for many.
Those who want to use loan proceeds to pay off debt may wish to consider the nature of the debt they are paying off–student loans are one type. Another is credit card or revolving debt.
The smart thing about using a cash-out refinance loan to pay off non-revolving debt like a student loan? That debt is not likely to recur if you’re no longer in school. But using cash-out refinance loan proceeds to pay off a credit card or revolving charge account means accepting the risk that you’ll have more debt on that same account in a few months or a year.
That’s important to consider when deciding exactly how to use your refi loan funds.
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we’ll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner’s Insurance
Step 9: What to Expect at Closing
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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