FHA cash-out refinancing is a wonderful option for many consumers across the country. However, if you want to use this program to take advantage of the equity in your home, you need to act fast. The program is changing, and as of August 31st the requirements will be more strict.
There is still time! If you are reading this before August 31st, contact our staff right away. We can help you get approved for FHA cash-out refinancing before the important deadline.
But first, we need to explore why these changes are so substantial…
If You Need FHA Cash-Out Refinancing, Act Quickly Before the Program Changes!
Understanding Loan-to-Value and Equity
To understand why these changes are significant, we should first take a step back and explain loan-to-value ratios and the direct impact of equity. “Equity” is the percentage of the property’s value that you, the homeowner, own. If the home is worth $200,000, and you have a downpayment of $50,000, that would mean you start with 25% equity, and the loan of $150,000 would be 75% loan-to-value (LTV). These two numbers (LTV and equity) are directly dependent on each other; as one goes up, the other goes down.
Loan-to-value matters to lenders because it has a significant impact on the overall statistical risk. Broadly speaking, if a person has more equity and a lower LTV, they are less likely, from a statistics standpoint, to go into loan default.
Loan-to-value is important in both purchase loans and refinancing, including cash-out refinancing. In order to reduce their overall risk, lenders prefer a low LTV. Although the FHA insures loans (they do not actually loan the money), they have requirements to obtain their insurance, including LTV requirements.
Previously, if you had 15% equity in the home, you could use FHA cash-out refinancing. That is now changing. Starting September 1st, your LTV will need 20% equity before this option is available.
Basically, this means that you need to pay off more of the loan balance on your home than you would be required before the changes. If you are somewhere between 15% and 20%, this change will have a direct impact on your ability to use FHA cash-out refinancing. There is still a possibility to use the program, but you need to contact our staff as soon as possible. If you contact us quickly, we may be able to help.
How to Take Advantage of 80% LTV Cash-Out Refinancing Before the Deadline
This new rule goes live for all new FHA loans starting on September 1st, 2019, so if your lender or lending agent can start a “case number” by August 30th, you may be able to push it through. Your case number is simply an FHA-specific identifier that is generated the day you apply for an FHA loan.
You will need to apply for cash-out refinancing through the FHA by August 30th, 2019, which is the last business day of the month. (The final day of the month, August 31st, is a Saturday, so loans will not be processed on this day.)
But you don’t want to wait too long to create your application. We expect to see many borrowers rush to use this program before the changes go into effect, so there could soon be a logjam of applications. Get yours in quickly or you may be delayed.
After September 1st, 2019, You Still Have Options
The deadline for using FHA cash-out refinancing with only 15% equity is approaching fast. In fact, if the calendar has passed August of 2019, it’s already too late. However, you are not stuck with the loan you have, as there are options for cash-out refinancing that can deliver the affordable or more reasonable loan you deserve.
If you are reading this article after September 1st, 2019 and you don’t meet the 20%-equity requirement, you still have options:
Wait Until You Have 20%
One of the options you have is to simply wait. This might not seem like the ideal choice for some, but if you still want to use FHA cash-out refinancing, and you are not yet at 20% equity, you could simply wait and continue to pay on the loan. Eventually, assuming you make the payments, you will reach 20%.
Depending on your loan balance and current equity, it may only be a year or a couple of months, so waiting may be a good choice.
Personal Loans for Cash-Out Refinancing
One of the most popular options you can use is a personal loan. Depending on the situation and the specific lender, personal loans do not have an equity requirement, unlike FHA loans. This means that you may be able to use a personal loan to get the cash-out refinancing you need. Closing costs can also be lower, and personal loans are often a good way to secure the financing you need by attaching the loan to your home, which can also enhance your loan terms. (Although it will mean the lender could, in an extreme situation, seize your house.)
Cash-Out Refinancing with a VA Loan
The Department of Veterans Affairs provides support to a wide variety of benefits, including home loans. While most people think of VA loans for an original purchase, you can also work with them for cash-out refinancing. If you are a qualifying veteran or family member, you may find that VA loan cash-out refinancing is a good option for your needs.
Get the Cash-Out Refinancing You Need Now!
Some form of cash-out refinancing will always be available, but if you have between 15% and 20% equity in your home and you want to use FHA cash-out refinancing, you need to act now. This program is changing, but there is still time if you apply quickly!
Are you reading this after August 30th? Contact our staff and we’ll help you find the right cash-out refinancing program so you can take advantage of your home’s equity.