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Borrowers who want an FHA cash-out refinance have the option of refinancing an existing FHA mortgage or a non-FHA loan. In either case there are rules and requirements you should know about before you commit.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

Cash-Out Refinance Requirements

August 7, 2020

Cash-Out Refinance Requirements
Borrowers who want an FHA cash-out refinance have the option of refinancing an existing FHA mortgage or a non-FHA loan. In either case there are rules and requirements you should know about before you commit.

In general, the FHA loan program offers a variety of refinance loan types including:
 
  • Cash-out refinances 
  • No cash-out refinances such as Rate and Term refinance, Simple Refinance, and Streamline Refinance
  • Refinances for rehabilitation or repair (Section 203(k))

Of the above, only cash-out refinance loans allow cash back to the borrower. All FHA mortgage loans permit cash back to the borrower in the form of a refund for expenses paid for up front but later financed into the loan amount.

In the case of FHA 203(k) refinance loans for rehab and repair there may be funds disbursed for the rehab project, but only for the specific costs of the work and other approved expenses.

FHA cash-out refinance loans may require higher FICO scores than for other types of refinancing. The FHA minimum FICO score requirements for maximum financing is as low as 580, but the lender may have a higher standard--expect FICO score requirements from many participating lenders to run 620 or better especially for cash out.

Cash out loans have stricter credit requirements but the credit score issue isn’t the only thing you’ll want to pay attention to when preparing for the application. You will also want to pay attention to your debt ratio---work on reducing the amount of monthly debt you pay compared to your income.

FHA Cash-Out Refinancing provides cash back to the borrower but there is a maximum loan-to-value ratio (LTV). FHA purchase loans are offered to qualifying borrowers with an LTV of 96.5%, while FHA cash-out loans are for an LTV of 80%. That LTV is calculated based on the current fair market value of the home, which means an appraisal will be required.

Your cash-out refinance loan is based on the most up-to-date information on the house’s value at the time rather than relying on older information that may not accurately reflect what your house is worth today.

When can most borrowers apply for a cash-out refinance loan to pull money out of their home? For FHA cash-out loans, you may be required to make a minimum amount of on-time payments consecutively--between six months and 12 months depending on circumstances. Requirements may be different for those who want to refinance a home they have already paid off.

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