FHA cash-out loans are a very popular way to get access to the equity that has grown in your home. You likely purchased your home with 3.50% down payment. Over time, your “equity position” has grown significantly to 20% (or more). With as low as a 500 credit score, you are eligible for a FHA cash out loan. If your credit scores are over 620, then a good option to review with a mortgage professional is a conventional cash out loan.
Benefits of FHA Cash Out Refinance:
Cash out refinance puts extra cash in your pocket which can be used for most purposes including:
- Home improvements
- Debt consolidation
- Education costs
FHA Cash Out Credit Scores and LTV:
FHA cash out loans have more lenient guidelines which makes it easier to qualify for them. The minimum eligible credit score is 500! FHA cash out refinances have a maximum loan amount of 85% of the value of your home. Since cash out financing is more carefully approved than a home purchase, lenders will usually look for a credit score between 620 and 680 for the easiest qualifying. This higher limit is why FHA is more attractive to some homeowners looking for cash out quicker.
FHA Cash Out Guidelines:
A borrower needs stable and consistent income for a new loan. Lenders will need the borrower to verify their income with W2 forms, federal income tax returns, the most recent pay stubs and year to date earnings.
Verification of assets are not usually required for FHA cash out refinances because no fund are needed to close the transaction. However, the lender could request bank statements during underwriting.
You will need a new appraisal on your property which the lender will help facilitate. The appraisal value is used to decide the maximum loan amount. The current loan amount maximum is 85% of the value of the property.
The minimum credit score for FHA loans is 500. However, most lenders have their own internal requirements. Since the loan is riskier for the lender they will usually have a minimum score requirement of 620 to 680.
FHA Cash Out Requirements:
In order to qualify you must have not missed more than payment more than 30 days late in the last year. Your current mortgage must also be at least six months old.
FHA cash out refinance loans can only be used for owner occupied properties and cannot be used for rental properties. So, if you originally purchased your home with a FHA loan, then moved out of that property to rent it, this is not eligible.
FHA cash out loans require the borrower to meet current debt to income ratio guidelines. The maximum FHA debt ratio guidelines are 29 to 41. However, we have seen instances where a 57% income ratio was approved.
Give me a call and I am happy to review all of the details of your credit profile. The goal is to get you the information you need to move forward.