7 Questions To See If An FHA Cash-Out Refinance Is For You
Whether you’re paying for college, a new car or other big expenses, an FHA cash-out refinance from CrossCountry Mortgage, Inc. can help.
At CrossCountry Mortgage, Inc., we know that life happens — major expenses pop up unexpectedly or sneak up on you no matter how hard you try to prepare. If you already have a mortgage and you’ve been considering refinancing, it might be beneficial to consider some of the benefits of an FHA cash-out refinance.
What is the FHA?
If you’ve never had an FHA mortgage before, you may be wondering what the FHA is and what benefits an FHA mortgage carries. The Federal Housing Administration (FHA) is a government agency that provides insurance on loans given through FHA-approved lenders, like CrossCountry Mortgage, Inc.
7 questions to help you determine if an FHA Cash-Out refinance is right for you:
1. Are you in need of additional funds?
There are significant benefits to an FHA cash-out refinance, including the ability to borrow more than you currently owe on your home. This gives you the chance to apply the additional funds to a major project, life event or purchase, such as:
- College tuition
- Home improvement projects
- A car loan or buying a new car
- Unexpected medical expenses
- A wedding or honeymoon
- Debt consolidation at a lower interest rate
There are no major restrictions on how homeowners can use their additional funds. In many cases, this loan could be an inexpensive way to borrow money than other traditional routes. Our loan officers can help you figure in closing costs and determine how much you will have to borrow to get access to the funds you need.
2. Are you considering adjusting your mortgage anyway?
In addition to the benefit of extra funds to assist with expenses, refinancing may also help adjust your current mortgage terms to your benefit, especially if you are refinancing from a conventional mortgage. You may be able to:
- Lower your interest rate
- Change the loan term
- Transition from an adjustable rate to a fixed rate
3. Have you been delinquent in any recent mortgage payments?
To be eligible for an FHA cash-out refinance, you must have made your last 12 months of mortgage payments on time. If you have owned your home for fewer than 12 months, you must have made all your past payments on time.
4. Have you owned your home for at least a year?
While you can enjoy the benefits of this type of refinance after only owning your home for six months, it is far more advantageous for you to apply for this type of loan after at least 12 months have gone by.
At less than 12 months, you may be more limited in your access to funds. If you’ve owned your home for less than a year, your maximum loan amount will be 85% of either the current appraised value or the original purchase price of your home, whichever is less. If you wait at least a full year, the maximum amount will be calculated on the current appraised value.
5. How is your credit?
Generally, for an FHA cash-out refinance, lenders will require a minimum credit score between 640 and 680.
6. Can you afford higher long-term monthly payments?
Increasing the amount of your loan will most likely increase your monthly payments. And though there are many benefits to the FHA cash-out refinance, a significant disadvantage is the required upfront and monthly mortgage insurance premiums.
The upfront insurance cost (1.75% of the loan amount) is wrapped into the loan while the monthly premiums (ranges depending on loan length and down payment amount) are split into 12 installments paid with your mortgage each month. These additional insurance premiums also raise your monthly mortgage payments.
In exchange for the mortgage insurance premiums, the FHA cash-out refinance is more flexible in terms of credit requirements and loan-to-value limitations.
7. Do you live in the home?
FHA cash-out refinances are only available on owner-occupied homes. Unfortunately, you cannot use this type of refinance on a second home or rental home and non-occupant co-borrowers are not allowed.
Take The Next Steps!
As you can see, there are a lot of things to think about when considering a refinance. If you are still interested in an FHA refinance but are not sure the cash-out refinance option is for you, the FHA also offers a more standard streamline refinance.
If you have any questions about an FHA cash-out refinance or other refinancing options, start the conversation with one of our licensed loan officers.
CrossCountry Mortgage, Inc. is an FHA Approved Lending Institution, and is not acting on behalf of or at the direction of HUD/FHA or the Federal government. All loans subject to underwriting approval. Certain restrictions apply. Certificate of Eligibility required for VA loans. CrossCountry Mortgage, Inc. is an FHA Approved Lending Institution, and is not acting on behalf of or at the direction of HUD/FHA or the Federal government. All loans subject to underwriting approval. Certain restrictions apply. Certificate of Eligibility required for VA loans. USDA Loans: Borrower income limited to 115% of median income for the area. Borrowers must have reasonable credit histories. 30-year loan term. Housing costs cannot exceed 29% of income; total debt payments cannot exceed 41% of income. Homes must meet state and HCFP building codes. Funding fee required. Available only in designated USDA rural areas.