FHA Cash Out Refinancing
There are many reasons why to refinance a mortgage, either lower the monthly rates, or shorten the amount of years due. On other reason is that in some cases there can be cash out option, where after refinancing the home owner gets a large sum of money in cash. These Option was a lucrative option for the FHA cash out refinancing plans at 2009.
These days the HUD (U.S. Department of Housing and Urban Development) have published new guidelines for the cash out refinancing option. These are concerning the FHA Refinancing plans only, the non government insured mortgages can be still cashed out privately by the lenders specific terms.
How To Get Money With Cash Out Refinancing
The option to get cash out of a refinancing process is well known, it was used by real estate investors when the mortgage rates plunged at 2009. It was then that the FHA cash out refinancing got the leash. How to get cash out refinancing? Simple, think that a property value is $150,000 and the mortgage left to pay on the property is $100,000. With the low interest rates, the homeowner can refinance $130,000 and get $30,000 cash from the deal for which ever use he needs.
Why people cash-out? There are many reasons, the financial reason to cash-out is that with ‘cheap’ money they can pay off credit card loans, auto loans and other expensive debts they have. When monthly credit interest rates reach 20%, paying them off with a 5%-7% rates makes a lot of financial sense.
Another financial reason to cash out can be when people believe that investing the money could make them a larger profit than the current mortgage rates. Other use the cash as down payments needed when they buy another property. Another financial reason to cash-out is to pay for expensive home improvements, when paid by credit or regular loan would cost more.
FHA Cash Out New Requirements
At 2009, the HUD decided that these FHA cash out refinancing should be slowed down. The decision was made in order to avoid these Cash Out Refinances to be a quick way to get money over the tax payers insured FHA loans. New regulations were issued on these refinancing programs.
Today these refinancing programs are available with some tougher regulations. The FHA still has the streamline refinancing programs which are more easy to apply and succeed to meet their requirements.
Cash Out Refinancing Interest Rates
The mortgage rates of a cash out refinancing is usually higher than a streamline refinancing. Lenders know that you are borrowing a larger sum than is needed to cover for the current mortgage, so they are ‘selling’ their money for higher rates. These rates apply for the new mortgage and not only for the remaining delta of the cash you take out.
On top of this there will be extra costs to the mortgage process with a cash out refinancing. The appraisal and closing costs are out of the pocket and can not be added to the new FHA refinanced mortgage.
Guidelines For Cash Out FHA Refinancing
The basic guidelines for the cash-out refinancing are:
Have 15 Percent Equity– These refi plans are restricted only to people who have gained at least 15% of the home equity. This is done so mortgages will not be cashed out too quickly, and not too close to 100% of the home equity. This cash out FHA refinancing rule is the refinance can not exceed the 85% of the appraisal evaluation.
Owner Occupied – The rule says that the property must be used for living by the owner. This means that rented property can not be included for the FHA cash out program.
One Year Mortgage – The 12 month rule was made to avoid people using the loophole and getting a no money down FHA loan and immediately cashing out by refinancing. In case that the property was inherited.
These are the general FHA cash out refinance rules, though they are more harsh than before the April 2009 HUD letter, for some they are still at reach, and can allow cash out for other purposes as mentioned above. It is worth to fully check the FHA refinancing requirements to see that you can financially benefit from the refinancing process.
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