What To Know about FHA Cash-Out Refinance Requirements and Guidelines

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If you have an FHA loan, you may be able to tap into your home equity by refinancing. This can give you the cash you need to renovate your home, consolidate debt, or help pay for a college education. Here’s a look at the FHA cash-out refinance program, including how it works and how you can qualify.

You won’t find rates for FHA cash-out refinances at Credible, but if you’re looking for a great cash-out refinance rate on a conventional loan, it only takes a few minutes to compare personalized, prequalified rates.

What is an FHA cash-out refinance and how does it work?

An FHA cash-out refinance allows you to take out a new FHA loan, insured by the Federal Housing Administration, that pays off and replaces your current one. Your new loan will be for a larger amount than you currently owe, with the difference coming to you as cash.

You can use the money you receive from an FHA cash-out refinance for anything, but people often use the funds to pay off high-interest debt, or to pay for home improvements or large expenses like medical bills or tuition payments.

An FHA cash-out refinance is different from another common type of FHA loan refinance: the FHA Streamline Refinance. A streamline refinance doesn’t allow you to take cash out from your equity, but you benefit from a quicker and easier process. Streamline refinances don’t require a home appraisal, and you may not need to go through a credit check. With a cash-out refinance, you’ll need to do both.

How do you qualify for an FHA cash-out refinance?

FHA cash-out refinances have requirements similar to those of a traditional FHA loan, with some key differences. To be approved for an FHA cash-out refinance, you must have:

  • A credit score of at least 500
  • A debt-to-income ratio below 50%
  • At least 20% equity in your home after refinancing
  • Owned and lived in the home as your principal residence for the past 12 months
  • Made all mortgage payments within a month of their due date for the past 12 months

The amount of cash you’re able to take out depends on your home value and how much equity you have in the home. After your refinance is complete, you must still have 20% equity.

For example, let’s say you have a home that’s worth $300,000 and you owe $200,000 on your current mortgage. You currently have about 33% equity in your home.

In this situation, you could potentially take out up to $40,000 in cash through an FHA cash-out refinance loan worth $240,000. That would leave you with $60,000 in equity, or 20% of your home’s value. Lenders may have different requirements for an FHA cash-out refinance based on your credit score and other factors.

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Source: What to know about FHA cash-out refinance requirements and guidelines | Fox Business

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