With the appreciation in home values in recent years, many homeowners now have a significant equity position in their homes.
As a result, depending on the use of the funds, it could make sense to tap into your home’s equity, to perhaps take out funds to consolidate debts, remodel your home or pay for other unexpected expenses.
In this article we will explore some of the basics of the cash out refinance, by taking a quick look at three main loan types: Conventional, FHA and VA loans and how they each differ when it comes to a cash out refinance. In addition, we will also briefly touch upon other loan options available, outside of these three major programs.
Conventional Home Loans:
When completing a cash out refinance through a conventional home loan, you can generally take out a new home loan equal to 80% of the value of your home.
This means that if your home is worth $300,000 for instance, you could refinance into a new 15-year or 30-year fixed loan up to a $240,000 loan amount (80% of your home value).
If that doesn’t meet your needs and you are looking for additional equity out of your home, with a credit score of 740 or higher, you may have the ability to go up to 85% of the value of your home, through a recently introduced expansion of conventional loan, for higher credit score borrowers.
One final item of note, is that the conventional home loan is one of the only programs that will allow for cash out refinances of investment homes, but with lower loan to values allowed, then on primary home loans.
FHA Home Loans:
FHA loans are a little more lenient than conventional home loans, in that they allow a cash out refinance up to 85% of the value of your home, for all qualified borrowers, down to a 580-credit score.
All FHA loans do have mortgage insurance however, so if you are taking a loan at 80% of the value of your home or less, it certainly makes sense, to price out the total cost of both an FHA and Conventional loan.
VA Home Loans:
VA loans will actually allow for a cash out refinance up to 100% of the value of your home. In addition, all VA loans do not have mortgage insurance. However, unless you are exempt from the VA funding fee (due to a VA disability rating), then you will pay a VA funding fee when you complete a VA cash out refinance.
Other Cash Out Refinance - Home Loan Options:
If you are looking for a loan above the Conventional and FHA loan limits, there are Jumbo home loan options as well, to complete a cash out refinance. The guidelines on Jumbo loans will vary from lender to lender, but in general, you will be limited to 80% of the value of your home.
Finally, there is also the consideration of just taking a standalone second mortgage, whether it be a home equity line of credit or a fixed rate second mortgage. However, both of these options will generally have a higher interest rate, than a new cash out refinance first mortgage.
As always, it makes sense to speak to a licensed lender, such as Strategic Mortgage to fully qualify and see what home loan options are available to meet your specific situation.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: firstname.lastname@example.org or online at www.strategicmtgaz.com
Vasilios Kamboukos – NMLS#160440