FHA Cash-Out Refinance
Put the Equity in Your Home to Work for You
- Take advantage of great FHA rates to pay off high-interest debt
- Add value to your home or take care of lingering tuition bills
- PennyMac will lend up to 85% of the value of your home*
*Loan limits are established by FHA and can vary by county.
Today's FHA Cash-Out Refinance Rates
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FHA Cash-Out Program
If you been in your home for a few years and haven’t looked into how the value has changed, you may be in for a pleasant surprise. While just simply paying your mortgage each month will help build equity as you reduce the principal amount, the overall market value of your home may also be increasing. The difference between what you owe on your mortgage and the value of your home is your equity, and it can be used in a variety of ways.
A common use for equity is to consolidate high-interest debt. An example of high-interest debt is an outstanding balance on a credit card, which can sometimes come with interest rates in excess of 20%. Managing those kinds of debts through a cash-out loan can often save you dramatically in both your monthly payments and the lifetime cost of the debt.
Home improvements are another area where an FHA Cash-Out Refinance could potentially help you. Using your equity to make home improvements can help transform your home into something that better suits your needs while adding long-term value to your property.
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What is the FHA Cash-Out Program?
An FHA Loanis a mortgage that is insured by the Federal Housing Administration. The FHA offers mortgages for the purchase of a home loan as well as for refinance--either for interest-rate reduction or for cash-out purposes. Similar to other FHA programs, FHA cash-out mortgages require mortgage insurance.
If you’re considering a home equity line of credit (HELOC), there are some good reasons to consider an FHA Cash-Out loan. For example, if you prefer fixed-rate mortgages then, a fixed-rate FHA Cash-Out loan may be preferable to a variable-rate HELOC.
While an FHA Cash-Out loan may be a great option for many current FHA borrowers, it should be noted that borrowers with good credit and more than 20% equity in their homes are often better served by refinancing into a conventional loan.
Why an FHA Cash-Out Loan?
The most likely reason you might choose an FHA Cash-Out Loan over other options are the higher LTV and more lenient credit score requirements. As with other cash-out loans, there is a lot of flexibility in relation to how you can use the cash from your equity, but it is always wise to weigh both the short and long term financial repercussions of any type of refinance.*
Just a few of the ways FHA Cash-Out Loans can help borrowers includes:
- Paying off high-interest debt
- Make your interest tax deductible, as opposed to credit card debt
- Eliminating lingering tuition-related debt
*By refinancing your existing loan, your total finance charges may be higher over the life of the loan.
FHA vs Conventional
After building some equity in your home with an FHA mortgage, you might not be aware of your options beyond refinancing into an FHA Cash-Out Loan. One option that may make sense to consider is a Conventional Cash-Out Loan.
The most dramatic difference between an FHA and a conventional mortgage is related to mortgage insurance. While you may be paying mortgage insurance for the life of your FHA loan, borrowers who have established more than 20% equity in their new mortgage are eligible to remove mortgage insurance with a conventional loan.
Note that the criteria for qualifying for a conventional loan is also different than an FHA. A conventional loan will require a higher credit score and a longer period of positive credit history. If you have had a foreclosure, you may be eligible for an FHA Cash-Out Loan four years sooner than you would for a conventional loan, which is generally about seven years.
Am I eligible for FHA Cash-Out Refinancing?
Qualifying for an FHA Cash-Out Loan is no different than the first time applying for an FHA loan. If there haven’t been major changes to your financial profile, there shouldn’t be any problems qualifying for an FHA Cash-Out Loan. The basic requirements for a FHA Cash-Out borrower include:
- Steady employment history
- A valid Social Security number, lawful residency in the U.S. and be of legal age to sign a mortgage in your state.
- The property must be your primary residence
- The property must be appraised by an FHA-approved appraiser
- A minimum credit score of 680
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