Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
New FHA Cash-Out Refinance Update
As we see a substantial increase in home values, more and more homeowners are accumulating a good amount of equity in their homes.
With this increase in home equity, homeowners get an opportunity to access their equity and get cash-out for their use. One amongst many options to tap into your home equity is through cash-out refinance.
And one amongst many programs is FHA cash-out refinance. In this post, we will understand the latest updates about the FHA cash-out refinance program.
About FHA Cash Out Refinance Program
The FHA cash-out refinance program is one of the most flexible and one of the best cash-out refinance programs that are available for homeowners.
The last significant change that this program had was about ten years ago when they changed the loan to value ratio from 95% to 85%.
Everyone was expecting it back then because the nation was in the middle of the financial crisis, and home values were plummeting in many areas of the country.
So it made sense to change the program in many areas of the country and make it more restrictive.
However, here we are in 2019, the real estate market is doing well, the stock market is hitting an all-time high, and it was utterly blindsided to see these changes get made, with effect from September 2019.
Changes In The Program
The major change in the FHA cash-out program is in the loan to value ratio, which is a ratio of the money that you can borrow against your home they have now changed the loan to value, down from 85% to 80%.
This 5% difference can mean quite a bit of money if you are a homeowner who is looking to utilize the equity in your home to pay off debts, home improvements, fund education, etc.
So, this change limits the amount of cash a homeowner can potentially receive while refinancing with this program.
For example, on a $200,000 property, it is a difference of $10,000.
That $10,000 is real money that could be going into your pocket as a homeowner, and with the change in the program that $10,000 will stay in your home as equity, but you won’t be able to access it.
Previously, conventional cash-out refinances were a great option if you had good credit, and you had a lot of equity in your home.
But for many people, maybe they just bought their home in the last few years, or they had few challenges with their credit, and for those people, the FHA cash-out refinance was by far the most flexible program available.
This program allowed such individuals to get back on the upswing with their credit and their finances.
Ultimately, for a lot of people, this was a stepping stone; they take this FHA cash-out refinance, get their finances and credit in place, and after few years, in many cases, they could refinance into a conventional mortgage.
Now, with the reduction done to 80% loan to value, the scope of benefit is quite less for the homeowners using FHA cash-out refinance over other loan programs.
Conclusion
FHA loan programs are specially designed for individuals with below par credit scores and higher debt to income ratio.
With a drop of 5% in loan to value for FHA cash-out refinance, it gives the same limit as the conventional mortgage refinance, which is also at 80% loan to value.
Individuals with low credit scores and high debt to income ratio, who needs to tap into their equity, might lose on that 5% of additional cash, which they were getting earlier with FHA cash-out refinance.
Get in touch with your trusted loan officer to know how this change can affect accessing capability from your home equity.
