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FHA loan rules for cash-out refinancing always require the borrower to qualify and meet credit and income standards that may not be the same as for non-cash out transactions.

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

FHA Loan Rules: Cash Out Refinancing

February 21, 2012

When it comes time to refinance an FHA mortgage, borrowers can choose FHA cash-out refinancing loans or FHA refinancing loans with no cash back to the borrower.

FHA loan rules for cash-out refinancing always require the borrower to qualify and meet credit and income standards that may not be the same as for non-cash out transactions.

There are also some restrictions on FHA cash-out refinancing that may not apply in other refinancing situations. For example, according to FHA.gov, "Cash out refinance transactions are only permitted on owner-occupied principal residences".

The FHA owner/occupier rules are strict, and also include the following;

"Non-occupant co-borrowers may not be added in a cash out refinance transaction in order to meet FHA's credit underwriting guidelines for the mortgage. Any co-borrower or cosigner being added to the note must be an occupant of the property."

Another restriction on cash-out refinancing loans insured by the FHA? Rules on who can apply with regard to mortgage delinquency issues.

"Borrowers who are delinquent, in arrears, or who have suffered any mortgage delinquencies within the most recent 12 month period under the terms and conditions of their mortgages are not eligible for cash out refinances. If a property is encumbered by a mortgage, the refinancing lender must document that the borrower has an acceptable payment history."

What does the FHA consider to be an acceptable payment history? For FHA insured refinancing loans with cash back to the borrower, it's defined as follows:

"...the borrower is current, and has made all payments on the mortgage being refinanced within the month due for the previous 12 months. For mortgages with more than six months and fewer than 12 months of payment history, the borrower must have made all payments when due"

FHA cash-out refinancing is not permitted for mortgages with less than six months of payment history.

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