In the current market, there are different mortgages available for different loan needs. Lenders offer various packages such as fixed-rate mortgages or reverse mortgages. Then there is also a type of mortgage that the government issues: FHA cash out refinancing.
Going for this option is commonly done for refinancing mortgages in an attempt to decrease monthly payments, reduce the interest rate, and to pull cash out for various personal reasons.
Often, FHA cash-out refinancing is ideal for borrowers who are first-time buyers but cannot meet lender requirements like specific down payment and credit score. So in other words, it makes life easier for first-time homebuyers.
However, there are a few more things about this type of mortgage that you need to know. If you feel that this is the loan that’s right for you based on the information provided thus far, read on. That’s because below you will come across some of the basics of this government-backed mortgage.
What is an FHA refinancing
FHA stands for Federal Housing Administration, which is a government agency founded back in 1934 during the worst and longest economic depression in the world’s history, the Great Depression. The FHA came into being to help those who were struggling to borrow money to buy their own homes.
Since it began, the FHA continues to help homebuyers to buy homes as well as homeowners to refinance their homes.
Cash-out for various reasons
Even though FHA cash-out refinancing is commonly done for dealing with steep monthly payments and interest rates, it is also great for personal financing matters. This is what’s called “cash-out refinance,” which is good for practically anything such as:
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Consolidating debt
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Remodeling or redecorating the home
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Making a real estate investment
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Starting a business
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Buying a new automobile
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Paying for college
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Taking a much-needed grand vacation
Still, it is a good idea to ask the lender if there are restrictions when it comes to how you wish to use the money.
Going for a different lender
Speaking of lenders, choosing a different one to refinance your home is possible if you wish to take advantage of the perks that come with FHA cash-out refinancing. Just make sure that you select from a list of lenders approved by the FHA.
Consider shopping around to find an FHA-approved lender that can provide loan terms that suit your needs and capabilities.
Be wary of lenders that may trick you into thinking that they are the only ones that can provide you with the FHA refinancing that you want. With the right FHA-approved lender, there is no need for you to go through another credit check and appraisal process. Also, you may qualify for an FHA-insured loan even if you have a FICO score below 580.
In conclusion
Cash-out refinancing by the FHA comes with a variety of benefits. Whether you are a first-time homebuyer or you want to refinance your home to pull out cash for personal matters, it can work to your utmost advantage. While it may seem the same as an equity loan, the fact is that it serves to replace your existing mortgage with a new and, quite frankly, a better one.
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