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.
Here's 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
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September 8, 2023Borrowers considering an FHA loan should be familiar with some basic loan terminology. These loans are popular among first-time homebuyers and those with lower credit scores because they often offer more flexible eligibility requirements and lower down payment options.
September 2, 2023You may have heard the terms co-borrower and cosigner in connection with your FHA loan process, but aren't sure about the distinction. Both a co-borrower and a cosigner can help a primary borrower qualify for a mortgage, but they have different roles and responsibilities.
August 27, 2023The Federal Housing Administration has specific credit requirements and guidelines for borrowers looking to buy or refinance homes with an FHA loan. In addition to what FHA guidelines state, lenders may have more stringent requirements that may vary from one lender to another.
August 23, 2023Mortgage APR (Annual Percentage Rate) and a loan's interest rate are two different things, although they are closely related. Understanding the difference is an important part of a borrower's analysis of the true cost of their mortgage.
