The 2019 Requirements for the FHA Cash-Out Refinance Loans – Tap into Your Home Equity Now!
In recent years, more and more homeowners are having an unparalleled amount of equity in their home. As reported by the Federal Reserve, homeowners are sitting on approximately $15 trillion in equity, an all-time high till date. So many are looking for options to use this equity in some method.
Fortunately, there is an option for the homeowners with an FHA loan to qualify for a cash-out refinance. The FHA Cash-Out Refinance Loan will help you to seek a larger loan of up to 85% of your home’s current value. This option allows the homeowners to tap into their home equity to pay off their existing mortgage, and create a larger home loan that provides them with extra cash for home improvements, consolidate debt, or any other financial goals. For example, if you have a $200,000 property and your FHA loan balance is $100,000, then you may get a cash-out refinance of up to $65,000 cash and have a new loan outstanding of $165,000.
The FHA cash out refinance loan program is government-sponsored that allows the homeowners to convert their home equity into cash by taking out a larger loan than what they currently owe. The FHA credit and loan-to-value rules are more flexible than conventional, enabling homeowners to tap into their home’s equity. The funds raised with an FHA cash out refinance loan can be used for any kind of financial investment like home renovations, paying off the credit card debt, student loan refinancing, debt payment of the first and second mortgage, or paying off the other personal debts.
When FHA Cash Out Refinance Can be the Option for You?
The FHA cash out refinance can be a great option for you in the following circumstances:
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You have lots of equity build up in your home
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The current mortgage rates are higher
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You have lots of high-interest debt
In case of any of the above-mentioned situation, you can have the option for seeking the FHA cash out refinance loans. But, do you exactly know how FHA cash-out refinances work? Let’s find out how it works in brief below!
FHA Cash Out Refinances – How Does It Work?
With the FHA cash out refinance option, you open a new FHA loan to replace an existing loan. You will pay a single mortgage loan payment each month for it. Also, unlike the FHA streamline, you do not need to refinance an existing FHA loan with the cash out refinance option. Additionally, this allows you to convert your home equity into ‘spendable’ cash. In fact, FHA can be a great cash-generating tool for a homeowner.
Let’s have a look at how it works:
FHA Loan With Current Balance |
$300,000 |
|
Current Market Value of the Home |
$400,000 |
|
Equity |
$100,000 |
|
New FHA Loan (Max 85% of Value) |
$340,000 |
|
Cash Out Refinance Value |
$40,000 - Closing Costs |
As already mentioned earlier, the maximum loan-to-value for an FHA cash out refinance is approximately 85%. So, you need to have substantial equity to use it. This loan is the best for those with good equity in their houses.
2019 FHA Cash Out Refinance Requirements
To be eligible for FHA cash-out refinance, you will require to meet some basic needs. Let’s find out in the below context about those requirements!
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High Credit Score
As per the recent FHA guidelines, homeowners seeking for the cash out refinance option must have a credit score of 600 or higher. Most FHA loan lending companies, set their own limits higher as FHA cash-out refinancing is more carefully approved than even a home purchase. Consult with your trusted refinance loan lender in Modesto about the FHA cash out refinance requirements today for knowledge regarding this.
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Maximum Loan-to-Value (LTV) Ratio
FHA cash out refinance loans have a maximum 85% loan-to-value ratio of the home’s current value. The LTV ratio is calculated by dividing the loan amount requested by the property value determined in the appraisal.
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Debt-to-Income Ratio
The FHA loan has guidelines regarding an applicant’s debt-to-income ratio in order to keep people from entering into mortgage agreements that they cannot even afford. Many homeowners seeking a mortgage loan choose to pay off certain debts to keep the ratio low. There are two different calculations to take into account in this regard:
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Mortgage Payment Expense to Effective Income – This kind of debt-to-income ratio is calculated by dividing the total housing payment by your income. You are required to add up your total mortgage payment that includes escrow payments for taxes, principal and interest, hazard insurance, mortgage insurance premium, homeowners association dues, etc., and all the recurring monthly expenses and installment debt like car loans, personal loans, student loans, credit cards, etc. Take the amount that comes as a result and divide it by gross monthly income. The maximum ratio to qualify for this type is usually around 31%.
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Total Fixed Payment to Effective Income – This requires you to add up the total mortgage payment and all recurring monthly expenses and installment debt. Take the amount and divide it by gross monthly income. This will give you the total debt-to-income ratio that includes monthly credit obligations that need to be lower than 43% to qualify.
These above-mentioned ones are some of the vital requirements to become eligible for the FHA cash out refinance loan. Apart from the above, some common requirements for the FHA cash out refinance loan are the following:
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The home needs to be necessarily owner-occupied only
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No late payments must be there in the past six months
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No more than a single late payment in the past 12 months
If you think you meet up to all these criteria, then you can easily be eligible for the FHA cash out refinance loan. It is definitely a great option to use your home equity to get the money you need.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.
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