What is an FHA Cash Out Loan?
FHA cash out loans allow the homeowner to refinance their home to get cash out to pay debts or do home repairs. Having equity in your home allows you to be able to do this, so that you don’t have to use credit cards or other personal loans as a source to help you come up with the funds to do so. There are limits set forth as to what you can borrow against your home’s value, so be sure of what you need to borrow before starting the process.
There are some basic requirements for FHA cash out loans, and they abide by the following:
1) If you are behind in your current mortgage, then FHA won’t approve your loan for cash out. This is just a safeguard to be sure that they aren’t giving you a larger payment if you aren’t able to manage the current one.
2) For FHA cash out they want you to have owned the home for at least 12 months prior to the date of the new loan application. As you know, many families won’t acquire enough equity in their home to do a refinance when it’s only been a year. If the homeowner is refinancing and it has been less than a year, then FHA will cap the loan at 85% of the home’s value, and they will typically base that off the lower appraisal. Again, the thought process here is not too push people out of their equity so that they have nothing left, and they don’t want to put you into a higher payment than what you have if it’s not necessary.
3) The third stipulation for an FHA cash out loan is that your pay history must have been consistent over the past twelve months. They are looking for no payments that were more than 30 days late, and they are looking to see that your current payment was made. Do not let any broker or banker tell you that can miss a payment since you are refinancing.
4) Keep in mind that this FHA cash out will only apply to a primary property, not an investment property. You, the homeowner must occupy the property you want to refinance.
5) The properties that can be refinanced with the FHA cash out loan program can be 1 to 4 units.
6) Remember, loan amounts will not be able to exceed the maximum loan limits for the area.
7) You must credit qualify. It has been a misconception that any borrower will qualify for an FHA loan, but that is not the case. FHA doesn’t want to lend to anyone who has had prior bankruptcies and was not able to establish their credit since then. They see it as too much of a risk, so keep this in mind.
8) Buyers can certainly refinance with someone else on the loan, but anyone else that appears on the loan must occupy that property.
9) Finally, if a homeowner wants to use the FHA refinance for cash out, they can pay mortgage insurance premium of front in the loan but the loan amount cannot exceed 85% of the home’s value.
If you have any questions or need additional resources, please visit www.fhaloansnow.net.