Could You Do a Cash-Out Refinance With an FHA Loan?
A cash-out refinance is a loan which pays for your present mortgage and gives you extra money to spend after all of the loan costs are all paid off. It’s possible to get a cash-out refinance using an FHA loan. FHA cash-out refinance loans compare well with similar private refinance mortgages, usually providing lower interest rates and more affordable closing costs. The requirements and documentation you need for an FHA loan are also less strict than for private refinances. The amount you can cash out on an FHA refinance is dependent upon the market value of your property and how much you still owe on it. FHA refinances offer a maximum refinance of 85 percent on the property's worth.
Assess if a cash-out refinance is right for you. Refinancing your mortgage rather than applying for a second mortgage makes sense if you are planning to remain in your home for a long time. If your refinanced mortgage has a lower rate of interest than your existing mortgage, then it may cover the cost of refinancing in the long term. Before making a decision, calculate how long you’ll need to remain in your home after a refinance, before it pays for itself and you begin saving money. Utilize a mortgage refinance calculator. If you are planning to sell your property in the short term, consider other options such as a home equity loan or a home equity credit line, which normally have reduced closing costs.
Apply to your creditor for an FHA cash-out refinance. Refinancing a loan is voluntary for FHA lenders. If your lender is not interested, look for a different lender in your area. The Department of Housing and Urban Development provides a list of FHA lenders by state and county.
Provide the necessary paperwork. As with all lenders, the FHA needs evidence you can afford the mortgage, and will request that you fill out forms and provide documentation. Prepare your paperwork when possible to reduce delays and complications. FHA lenders will ask you for the names and addresses of your employers, a list of the areas where you have lived in the previous two decades, and W-2 tax forms and IRS tax forms of the previous two decades. You will also need a credit check; you can get one for free at Annualcreditreport.com.
Read carefully the terms of the mortgage. Assess all the terms and exemptions are as agreed. Confirm you are saving money on your mortgage. You should also shop around for better deals from several lenders, and compare their costs. FHA loans come with no prepayment penalties, and that means you can pay early without paying more interest. If you concur with the details of the mortgage, then sign it.
Pay your mortgage. This can be done automatically by your creditor. The money left over after paying for closing costs and other fees is yours to keep.