If you are considering using an FHA loan to do a cash-out refinance on your home, you need to act fast. While the option is not going away, it will soon be restricted to people with 20% equity on their home (80% loan-to-value). Previously, you could do an FHA cash-out refinance with only 15% equity (85% LTV).
But there is still time, assuming you’re reading this before September 1st, so act now if you want to use FHA cash-out refinancing.
To understand why these changes are significant, we should first take a step back and explain loan-to-value ratios and the direct impact of equity. “Equity” is the percentage of the property’s value that you, the homeowner, own. If the home is worth $200,000, and you have a downpayment of $50,000, that would mean you start with 25% equity, and the loan of $150,000 would be 75% loan-to-value (LTV). These two numbers (LTV and equity) are directly dependent on each other; as one goes up, the other goes down.
Loan-to-value matters to lenders because it has a significant impact on the overall statistical risk. Broadly speaking, if a person has more equity and a lower LTV, they are less likely, from a statistics standpoint, to go into loan default.
LTV plays a role in loans for the original purchase of a home, as well as cash-out refinancing. To reduce risk, lenders often lower the amount of LTV they will allow; for the Federal Housing Administration which does not loan money but provides insurance on loans that meet its qualifications, it appears there was a fear of too much risk so they are dialing down their allowed LTV.
Previously, if you had 15% equity in the home, you could use FHA cash-out refinancing. That is now changing. Starting September 1st, your LTV will need 20% equity before this option is available.
This will mean that borrowers have to pay off more of their mortgages in order to use this cash-out refinancing. If you are in the zone between 15% and 20% (17% equity, for example), you need to act now in order to use FHA cash-out refinancing. If you contact our team immediately, we may be able to help you secure the cash-out loan you need before it’s too late.
This new rule goes live for all new FHA loans starting on September 1st, 2019, so if your lender or lending agent can start a “case number” by August 30th, you may be able to push it through. Your case number is simply an FHA-specific identifier that is generated the day you apply for an FHA loan.
You will need to apply for cash-out refinancing through the FHA by August 30th, 2019, which is the last business day of the month. (The final day of the month, August 31st, is a Saturday, so loans will not be processed on this day.)
However, you will likely not want to wait that long to create your application. Lenders will be extremely busy creating applications for homeowners seeking to refinance before the deadline, so don’t wait or your application could be delayed.
The deadline for using FHA cash-out refinancing with only 15% equity is approaching fast. In fact, if the calendar has passed August of 2019, it’s already too late. However, you are not stuck with the loan you have, as there are options for cash-out refinancing that can deliver the affordable or more reasonable loan you deserve.
If you are reading this article after September 1st, 2019 and you don’t meet the 20%-equity requirement, you still have options:
Wait Until You Have 20%
The most basic option is to simply wait until you have gained 20% equity in the home. As you make payments, you will steadily gain equity, and because of “amortization,” you will actually be paying off more and more of the principle with every ensuing payment. You can always check with your lender to find out when you will reach 20% equity.
For some, 20% equity may only be only a couple of months away, so it may be worth the wait. For others, however, the wait will be too long; in this case, you may want to look into a more immediate option, such as personal loans or VA loans.
Personal Loans for Cash-Out Refinancing
One of the most popular options you can use is a personal loan. Depending on the situation and the specific lender, personal loans do not have an equity requirement, unlike FHA loans. This means that you may be able to use a personal loan to get the cash-out refinancing you need. Closing costs can also be lower, and personal loans are often a good way to secure the financing you need by attaching the loan to your home, which can also enhance your loan terms. (Although it will mean the lender could, in an extreme situation, seize your house.)
Cash-Out Refinancing with a VA Loan
If you are a military veteran or a qualifying family member, you could apply for cash-out refinancing through the VA. VA loans have easier requirements than the FHA, so even if you have a lower equity in the home, you could still qualify for this program. A VA loan is a useful option for military members, veterans, and their families, and it could help you take advantage of your home’s equity in the form of cash-out refinancing, even if your equity is less than 20%.
If you want to use FHA cash-out refinancing but have between 15 and 20% equity in the home, you need to apply now. If you don’t make the August 30th deadline, you may have to wait until you have 20% equity to use this beneficial refinancing option, so contact us today!
Even if the deadline has passed, we are here to help find the right cash-out refinancing option for your needs!
“We just closed on our second transaction with the Chad Baker team. They are very well organized and I can attest that they are looking out for their clients’ best needs. A special shout-out for Juliann B. who was our guide through the painful loan process. We found Juliann to be very responsive, kind, patient, and diligent in getting both our refis closed well.”
“I was amazed how quickly Chad was able to knocked out our refinance!. I highly recommend Chad he & his team did an incredible job! I had 3 others I was working with, including a Credit Union. Chad was able to offer me a lower rate with no fees! Based on the other 3 top financial bids I had for this refinance. ”
I hope you enjoyed reading this article. It’s my goal to keep you updated with the latest real estate mortgage news. I’m proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for LendUS. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2017. Got a question for Chad? Call (858) 353-8331 or submit your question online