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The FHA cash-out refinance option is especially beneficial to homeowners whose property has increased in market value since the home was purchased. It can help them pay for home improvements, college tuition, or student loan debt.

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July 22, 2019
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FHA.com is a privately owned website, is not a government agency, and does not make loans.

Pros and Cons of FHA Cash-out Refinancing

Turning Some of Your Home Equity Into Cash

A cash-out refinance can be a smart option for many homeowners. Whether it’s for home improvement, college tuition, debt consolidation (to pay off other high interest rate loans), student loan debt, or home remodeling, you can access money that you have in an illiquid asset. Many homeowners even choose to get a cash-out refinance to create a personal cash cushion, or put the money to work by investing.

Pros:

  • You Can Take Advantage of Low Interest Rates

    A big plus for FHA cash-out refinances are the universally low interest rates. Mortgages, in general, offer lower rates than credit card companies or student loan providers, which is why borrowers choose to consolidate their debt with a single, replacement loan in the form of a mortgage.

  • Your Home Equity Can Be Turned Into Cash

    Using the equity you have on your home for immediate cash allows you to pay for expenses of all kinds, whether it be home renovations, college tuition, or medical bills. You can access money that you have in an illiquid asset in order to accommodate those costs. Many homeowners even choose to create a personal cash cushion, or put the money to work by investing it.

  • FHA Loans Are Assumable

    An assumable loan means that the terms and conditions of the mortgage loan can be transferred from the existing owner to another buyer. The lender, who is the holder or servicer of the mortgage, determines the creditworthiness of the Assumptor, in accordance with standard mortgage credit analysis requirements.

  • Qualification After Financial Missteps Happens Sooner

    Time needed to qualify after a bankruptcy, foreclosure or short sale is reduced to two or three years for FHA loans. The FHA allows you to qualify in as soon as two years after the discharge of a Chapter 7 bankruptcy or short sale, and after one year of making payments on a Chapter 13 bankruptcy. For bankruptcies the date starts at the time of discharge - not filing.

Cons:

  • You'll Need to Get Your Paperwork Ready

    Remember the pages and pages of documents you printed out when you got your home loan? Get ready to do it all over again. The cash-out refinance is treated just as any other mortgage transaction, where you’ll need bank statements, W-2 forms, pay stubs, and much more.

  • Maximum FHA Lending Limits May Not Meet Your Needs

    The FHA has a maximum loan amount that it will insure for each county in the United States. This is called the FHA lending limit. It may not be enough if you need a large cash-out. Your type of home, such as single-family or duplex, can also affect these numbers.

  • Mortgage Insurance Requirements Can Complicate Your Costs

    If you are refinancing from a conventional for an FHA cash-out, keep in mind the issue of mortgage insurance. Upfront Mortgage Insurance and ongoing monthly premiums are required by the FHA loans (regardless of the down payment amount), which can run up your costs.

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FHA Refinance Options for Homeowners

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