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If the value of your home has significantly increased, you could benefit from cash out refinancing for expenses or investments.
Turn Your Home Equity into Cash
If you have owned your home for some years, and the value of your home has steadily increased, you have probably created a substantial amount of equity.
Refinancing with an FHA cash out loan can help you use the equity your home has accrued for any number of expenses. Some homeowners use the cash to consolidate bills, to pay for college, to make home improvements, to make other investments with higher rates of return, or even to take a vacation.
How Does a Cash Out Refinancing Loan Work?
If your home has significantly increased in market value, it has built up a beneficial amount of equity. The equity is the difference between the original purchase price of your home and its current market value.
A cash out refinance loan allows you to refinance your existing mortgage by taking out another mortgage for more than what you currently owe. You would be essentially buying your old mortgage with a new mortgage that is much larger. The equity that was built up in your home now comes out in the form of cash.
What Are the Rules of an FHA Refinance Loan?
Refinancing with an FHA loan is really fairly simple.
- You must be the owner occupant of the property.
- The maximum cash out refinance loan is 85% of the appraised value of the home.
- You may use a cash out refinance loan for 1 to 4 unit properties.
- You do not have to have an existing FHA loan in order to do an FHA cash-out refinance.
- There is no minimum FICO score requirement.
How Can I Tell How Much Cash I Can Get Out if I Refinance?
You can roughly approximate how much cash out you can get from a refinance by calculating:
- Property Value x 85% = New Maximum Loan
- New Maximum Loan - Amount Owed = Approximate Cash Out Amount
You will also need to deduct closing costs, which can vary from state to state.
If you have carefully invested in your home and have some expenses to cover, or want to reinvest in your home to make it even more valuable, an FHA cash out refinancing loan be a powerful financial tool.
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