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There are two things to consider about holiday debt when you are considering your home loan refinance options. One is that for any FHA refinance loan that requires a credit check, your debt ratio will be an important factor in loan approval.

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FHA Cash Out Refinance Loans and Holiday Debt

FHA Cash Out Refinance Loans and Holiday Debt
December 21, 2018 - There are two things to consider about holiday debt when you are considering your home loan refinance options. One is that for any FHA refinance loan that requires a credit check, your debt ratio will be an important factor in loan approval.

The other is that for an FHA cash-out refinance loan, you may wish to consider using one to help pay down past holiday spending debt if you’re feeling the pinch of growing credit card payments and interest rates.

The double-edged sword involved here is that to qualify for a cash-out refinance loan, you will need to keep your debt ratio within certain limits. The participating FHA lender wants to see that you can afford the new loan.

But if you are applying for a cash-out refinance to get funds back so you can pay down your debt ratio, it’s possible that without some extra budgeting and paying on your credit card balances you could have difficulty getting the loan approved IF your debt ratio is too high.

What’s a borrower to do?

Approaching this problem can require some creative thinking. Sometimes a cash-out refinance loan seems to be the best way to go, but might actually be less than ideal compared to your other refinance loan options.

For example; a borrower who has an existing FHA mortgage has the option of doing an FHA-to-FHA refinance to get into a lower monthly mortgage payment. This type of loan is known as an FHA Streamline Refinance and is only approved for existing FHA mortgages.

The FHA Streamline loan requires some type of genuine benefit to the borrower such as a lower monthly payment. If you apply for a Streamline Refi, your lower payment can free up cash you can put toward paying down your credit card debt.

Holiday spending is a serious issue, and borrowers should always consider their future mortgage loan or refinance loan plans when trying to decide how much gift giving to put in their credit cards at holiday time.

FHA Streamline loans and FHA cash-out refinance mortgages can help borrowers get out from under some of the holiday spending bills they rack up in the winter months, but it’s just as important to make a financial plan to avoid getting back into a large amount of credit card debt once you have refinanced. Doing so can help secure your financial future.

You can also call the FHA directly at their toll-free number (1-800 CALL FHA) to request a referral to a local, HUD-approved housing counselor who can help you with home loan and refinance loan planning, budgeting, and preparation including advice on how you can do your own credit repair work without paying a third party to do things you can do for free.

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