Cash-Out Refinance Guide
Cash-Out Refinance - Eligibility
Are you thinking of renovating your home or need cash for the biggest expenses? If you need the biggest expense, your home can be a valuable asset. If the value of your home is greater than your loan amount, you can apply for FHA cash-out refinancing.
What is a cash-out refinance?
Cash-out refinance will repay your old loan and give a new loan on your home equity. With the new loan amount, you will be able to repay the old mortgage and the remaining money will be refunded to you after closing.
Cash-out refinancing is paid on home equity and you can use the cash at any cost.
How a cash-out refinance works
If you currently have a home loan, the amount of the new loan is large enough to repay it.
Some cash-out refinance tips:
- Cash-out refinancing interest rates are comparatively higher than traditional refinancing.
- Its interest rate will depend on your credit score and amount of cash.
- You will be able to cash out up to 80% of your home equity. You must have 20% equity available in your home.
- The higher the loan amount, the higher the interest rate to be paid in the long run.
- Cash-out refinancing is the best option for the biggest cost financing, as it lowers interest rates.
- There is freedom to use cash.
Since this note is secured by your home, you must spend cash on a good investment.
Eligibility for FHA cash-out refinancing
This is the best option for refinancing your mortgage. If your existing mortgage is not an FHA mortgage, you can still qualify for FHA cash-out refinancing.
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However, there are some qualifications that you need to meet:
- Type of home: FHA cash-out refinancing can only be used for primary residence. Simply put, you must live at home, it cannot be any kind of vacation home or investor property.
- Time in the home: You must own the home for at least 12 months and the home must remain in your possession.
- Payment history: You will need to provide a history of whether the mortgage payment has been made in time for the past 12 months.
- Loan-to-value ratio (LTV): The amount owed on your existing mortgage cannot exceed 80% of the current value of your home.
For example, if your home is worth $ 200,000, but your existing loan amount is $ 170,000. If your LTV is 85%, it makes you ineligible for loan.
- Credit score: You must have a minimum credit score of 500 to qualify for FHA loan. However, some lenders prefer higher credit scores. But if you have an excellent credit score, you will qualify for a lower interest rate. To get a lower interest rate, you need to have a credit card score between 670 and 850.4.
How much cash will you get from FHA Cash-out Refinance Loan?
To qualify for the FHA Cash-out Refinance Loan, you must have the remaining 20% of your home loan equity. Existing loans can never exceed 80% of the value of your home. This condition limits the size of your loan and how much money you can “cash out”.
Estimate the current value of your home to determine how much financing you will receive on your home equity. A professional appraiser will help you estimate the current value of your home. Check the mortgage statement to know the remaining equity in your home. This will let you know how much you owe.
For example, the current value of your home is $ 250,000 and your existing mortgage debt is $ 150,000. You can borrow 80% of your home equity and get $ 200,000 in cash. Then the remaining equity in your home will be 20% which is $ 50,000 in cash.
So your new mortgage is $ 200,000 and your old mortgage is $ 150,000. After paying off the old mortgage with new mortgage cash, you have $50,000 left over in cash.
The FHA has closing costs that you can pay in cash or roll into a loan. For example, if the closing cost of your loan is $ 6,868, you will get a total cash of $43,132.5.