When you take out a larger amount when refinancing than the mortgage amount, that is what is meant as cash our refinancing. Typically, when a FHA cash out refinancing is requested by the borrower, they are not thinking about a lower rate, but to turn the equity in your home into cash to be used by the home owner.
Understanding Cash Out Refinancing
First you must have sufficient equity in the home for this to be a viable option. You are taking out cash from the equity which you have in your home. The amount of money you owe on your home minus the amount of your appraised property is your home owner equity in the home. When you refinance your home, you are refinancing the amount you owe in current mortgage amount, plus the extra cash you are taking out from the equity.
Please keep in mind that the rules of cash out refinancing is that you can only apply for this type of refinancing if you have sufficient equity built up in your home. Equity is the amount of the home you actually own, this value of the home minus all of the money owed. As an example: A home worth $200,000, and the homeowner owes $150,000, the difference of $50,000 is homeowners equity. This is the amount of money that can be cashed out as part of FHA cash out refinance program. Please note that individual lenders have rules on how much can be cashed out from this amount. So, speak with your FHA home loan specialist to get more information about the cash out refinancing program.
Credit Card Debt Consolidation
Sometime taking control of your credit card bills can be a real challenge often at 18% interest rate. So, if you owe $50,000 in credit card bills, just in interest payments, it can be near impossible to catch up and pay down this debt. Many people will used FHA cash out refinance to use the equity in the home to wrap the debt into a mortgage, thus reducing the rate and consolidate credit card debt. Imagine lowering your credit card rates from an average of 18% down to app. 6% and getting tax benefits, since now the consolidate debt is tied to your home loan. If you have questions, please call us and we can discuss this in more detail with you.
FHA Cash Out Refinancing – Does it make sense for my specific refinancing needs?
Cash out refinancing, with debt consolidation makes a lot of sense, when you ask the following questions to your specific situation:
- If the monthly mortgage payment is about the same, can I cash out and leverage the equity of my home?
- The amount of debt, is it less than the equity I have and will the cash out amount from the refinance address my debt?
- Do I have the ability to control my spending habits, so that I am refinancing the home loan and rolling in my current debt, but will not incur new credit card debt?
Answering yes to some or all of the questions above, then you are a good candidate to do an FHA cash out refinance. Additionally, the option to do a debt consolidation using the equity in your home as part of the refinancing process, would be a smart option for you.
FHA Cash Out Refinancing – Benefits
- Can get cash back to payoff your bills. Credit cards, car loans, recreational vehicles, IRS tax liens, judgments pretty much anything can be paid off
- Funds are tax free
- Lower monthly payments. By refinancing you can wipe out debt and consolidate and get a lower monthly payment with a lower rate.
- Boost your credit score. By paying your bills your debt ratio will go down and thereby you will see an increase in your credit score.
- Opportunity to be come debt free in a shorter span of time. By consolidating your bills and having only one payment to focus on you can pay that off faster and thereby have a better chance to become debt free in a much shorter span of time.
- Flexible credit requirements With a 600+ credit score you can apply.
FHA Cash Out Refinancing – Requirements
- Must have 600+ credit score
- Must be a current homeowner, can cash out from primary home, second home or investment property
- No chapter seven bankruptcy in the last two years
- One year into a Chapter thirteen bankruptcy is okay
- No late payments on mortgage in the last twelve months
- No foreclosures in the last three years
- No pay day loans or 2nd loans or lines of credit
- Must be able to document your income
- We can lend up to 85% of the apprised value of your home
FHA Cash Out Refinancing – Process
- Contact us or fill out the form and we will do a consultation with you to see what your goals are. We will review your financial situation, see what bills you want to pay off and come up with a few financial strategies to best consolidate your debt.
- Next once we identify which program we are going with we start to gather all your financial information. Here you will send in your income documentation and we will prepare the loan application.
- Then an appraisal will be ordered on the home to determine the value of the property.
- We underwrite the loan and verify all your information. Once underwriting is complete you will go to closing.
- Your current mortgage will be paid off if you have one or if your property is free and clear the finds will be disbursed to you from the title company. At this time all the creditors can be paid off as well.
- Once the closing is complete your bills will be paid off and you will have one loan payment on a new mortgage with a lower rate.
PLEASE NOT THAT CASH OUT REFINANCING IS NOT ALWAYS THE BEST CHOICE. If you cannot control your spending using credit cards, this can be financially disastrous. If you choose to leverage the FHA cash out refinance with debt consolidation option, and refraining from taking on more credit card debt is a great option for you. The consolidated debt rolled into the refinancing is now part of your home loan and tied to your mortgage owed to the lender. Therefore, unable to pay the mortgage owed to the lender can cause you to lose your home to the lender.
FHA cash out refinancing is a wonderful option to a debt consolidation with high interest rate and use your home equity to lower your monthly credit card payments, and getting tax benefits. Call us today to find out how we can help lower your monthly debt and/or help you with you get cash from your home equity using cash out refinancing.