Take Equity Out of Your Home in Cash with an FHA Refi Loan
November 25, 2024
The FHA loan program has some competition in this area, but how do your other government-backed refinance loan options measure up?
There are different types of cash-out refi loans, and among the most popular options are the FHA cash-out option and the VA loan option. Let's break down how they work and who they're best for.
FHA Cash-Out Refinance
FHA loans are insured by the Federal Housing Administration, which makes lenders more likely to offer them better terms to borrowers with less-than-perfect credit or who are new to the job market.
How FHA cash-out refinancing works:
You apply for a new mortgage loan.This new loan pays off your old mortgage and gives you the extra cash. The cash can be used for almost anything: home improvements, debt repayment, college tuition—any purpose acceptable to the lender. You make payments on the new loan. Like your old mortgage, you'll have monthly payments and mortgage insurance to cover.
Who's a Good Fit for an FHA Cash-Out Refi?
Homeowners with Some Equity
You must have built up some equity in your home to borrow against it.
Decent Credit Score
While FHA loans are more forgiving than some other types, your borrower takes more risk with transactions that involve cash back to the borrower.
Steady Income
Lenders want to see that you can afford the new loan payments.
VA Cash-Out Refinance
The Department of Veterans Affairs guarantees VA loans for veterans, qualifying military, and eligible surviving spouses. Not all house hunters qualify for this option.
How VA cash-out refinancing works:
Similar to FHA, you get a new, larger mortgage. This pays off your current loan and gives you cash back. You can use the cash for almost anything. Just like with FHA, you have flexibility in using the funds. You repay the new loan. You'll have a new loan term and monthly payments.
Who's a Good Fit for a VA Cash-Out Refi?
Eligible Military Personnel and Their Families
This is a key requirement.
Sufficient Home Equity
You'll need equity to borrow against, so it's wise to own your home for several years before applying.
Meeting VA Requirements
There are specific requirements for service history and creditworthiness.
FHA loans have limits that differ by county, but VA loans generally don't have limits for those with full entitlement.
Regarding credit score requirements, FHA loans tend to be more lenient, while VA loan requirements can vary based on the lender and other factors. A significant advantage of VA loans is that they don't require mortgage insurance, which FHA loans do. However, VA loans may have a funding fee, although some borrowers are exempt from this.
FHA Loan Articles
June 30, 2026FHA loans offer low down payment options and more forgiving credit requirements for borrowers who may not qualify for a conventional mortgage or need to save more money out of pocket at the front end of the mortgage. But even with more forgiving credit requirements, some borrowers are tempted to omit certain debt information from their home loan applications. What does it mean to conceal a debt or financial situation from your loan officer?
June 30, 2026Some borrowers start working on their credit scores but get impatient with the process because they can't predict when their efforts will change their FICO scores. How long does it take for your FICO scores to update when you pay off a loan, reduce your credit card balances, or take other steps to make yourself a better credit risk? The short answer is that credit reporting procedures are not standardized, and it may take more time than you realize to get those positive credit actions added to your credit report.
June 29, 2026Mortgage interest rates are "moving targets" shaped by national economic trends and the borrower's specific financial profile. What is your FHA loan interest rate? Much depends on the financial data you bring to the table. Lenders set interest rates daily based on a snapshot of market conditions, but the rate ultimately offered also reflects risk, equity, and the lending institution's internal operational costs.
June 28, 2026An FHA appraisal differs from a conventional appraisal. While the goal of a conventional appraisal centers on market value, the FHA appraisal also focuses on the buyer's safety and soundness. FHA lenders select the appraiser, not the home buyer.
June 24, 2026FHA loan closing costs vary by property price and geographic location, rather than by a single nationwide flat fee. Total settlement charges combine percentage-based fees, local government taxes, and marketplace service costs. If you are new to buying a home, you'll want to get familiar with the closing cost issues discussed here to avoid budgetary surprises later on.
