You can borrow up to 80% of the value of your home with an FHA cash-out refinance. FHA cash refinance loans have a maximum loan-to-value ratio of 80 percent of the current home value. The LTV ratio is calculated by dividing the amount of the loan requested by the value of the property determined in the appraisal. The maximum loan-to-value (LTV) ratio for an FHA cash out is 80% for most homeowners.
This means that you can borrow up to 80% of the value of your home, as long as you have at least 20% in net worth. Simple FHA refinancing is a simple process. You can add closing costs and prepaid costs to the loan, as long as you don't make the loan exceed 97.75% of the value of the home based on a current appraisal. This makes the option good for people who don't want to pay out-of-pocket closing costs.
However, most FHA-insured lenders set their own higher limits to include a minimum score of 600 to 620, since cash out refinancing is approved more carefully than even buying a home. Most people refinance with conventional loans to eliminate the annual mortgage insurance payment requirement or to increase the amount they can borrow against their equity. You generally can't add a second mortgage to the FHA cash loan, unless both loans add up to 80 percent of the home value or less. To use FHA cash-out refinancing, you must have lived in the residence you are refinancing for at least 12 months.
Like other cash loans, FHA cash-out refinancing works by applying for a larger loan than what you currently owe for the house. Qualifying borrowers can apply for FHA cash-out refinancing even if their current mortgage is conventional or another type of loan. Like other mortgages, FHA loans have closing costs, which will reduce the amount of money you take away from them. If you're interested in an FHA cash-out refinance, be sure to compare with some lenders and find the best rate for your new loan.
If you currently have an FHA loan, you could get a standard home equity loan through a local bank or credit union. With an FHA cash refinance loan, you apply for a larger mortgage to pay the current mortgage and receive the difference in cash. If you refinance an FHA loan that is less than three years old, you may be repaid a portion of the new initial premium. If you are interested in refinancing your mortgage, you can use an FHA cash refinance loan even if your current home loan is not an FHA mortgage.
If the value of your home is higher than your mortgage balance, you can use it to apply for an FHA cash refinance loan. You must have lived in your home, the one with the mortgage you are refinancing, for at least 12 months to qualify for an FHA cash-out refinance. But you must also have at least 20% of the net worth remaining in your home after the FHA cash out refinance is completed, which limits the amount of cash you can withdraw. You can get a simple FHA refinance that replaces your current FHA-insured loan with a new fixed-rate or adjustable-rate loan.