FHA Cash-Out Refinance Mortgage Guidelines On FHA Loans

FHA Cash-Out Refinance Mortgage Guidelines were lowered from 85% LTV to 80% LTV in 2020.

In this article, we will discuss and cover FHA Cash-Out Refinance Mortgage Guidelines On FHA Loans.

2020 UPDATE On Cash-Out Refinance Guidelines

Many homeowners do not realize the amount of equity they have in their homes due to skyrocketing home values.

  • HUD, the parent of FHA, allows homeowners to refinance their existing home loans and cash out additional equity
  • The proceeds from the cash-out refinance is tax-free
  • Homeowners can use the cash from the cash-out refinance mortgage for any purpose they like

Michelle McCue of Gustan Cho Associates defines an FHA cash-out refinance as the following:

An FHA cash-out refinance is a new mortgage against the home which pays off the existing mortgage, plus provides additional money from the remaining equity in the home to be used for other purposes.

Popular reasons to use cash proceeds from a cash-out refinance are the following:

  • Home renovations and improvements
  • Pay off other high-interest debts such as credit card debt, auto loan, student loans, second mortgage, and other debts
  • Investments such as buying another property, buying a second home, stocks, and bonds
  • Pay for a wedding
  • Use the proceeds to start a business

Homeowners with equity in their homes may qualify for an FHA Cash-Out Refinance Mortgage. HUD recently lowered the loan to value of cash-out refinance mortgages on FHA loans from 85% to 80% loan to value.

Eligibility Requirements And Agency Mortgage Guidelines To Qualify For An FHA Cash-Out Refinance

To qualify for an FHA cash-out refinance mortgage, borrowers need to meet all the minimum HUD Agency Guidelines on FHA loans.

Here are the eligibility requirements and agency mortgage lending guidelines:

  • The maximum loan to value is 80% LTV
  • Minimum credit score required is 500 FICO
  • Two year waiting period after Chapter 7 Bankruptcy discharged date
  • Three year waiting period after a foreclosure, deed in lieu of foreclosure, short sale
  • There is a six month waiting period to qualify for a rate and term refinance on FHA loans from the closing date 
  • There is a twelve-month waiting period to qualify for a cash-out refinance mortgage on FHA loans from the closing date
  • Timely mortgage payments in the past 12 months

The mortgage rates are based on the borrower’s credit scores.

Look at a case scenario chart below on how an FHA Cash-Out Refinance Mortgage works:


There are closing costs on all home purchases and refinance transactions. All closing costs on refinances can be rolled into the loan balance or paid from the proceeds of the cash-out funds.  The amount of closing costs depends on several factors. Closing costs vary depending on the location of the property, the type of property, and the loan level pricing adjustments.

Mortgage Rates On Cash-Out Refinance Mortgages

Mortgage rates are at historic lows. 30-year fixed-rate mortgages just hit 2.96% for prime borrowers.

  • However, there are pricing adjustments on cash-out refinance mortgages
  • Lenders consider cash-out refinances riskier than rate and term refinance
  • Therefore, there will be pricing hits on cash-out refinance mortgages
  • To get the lowest possible rate, borrowers should maximize their credit scores
  • The team at GCA Mortgage Group are experts in helping borrowers boost their credit scores so they can get the lowest possible mortgage rates

Jammi Cash of Gustan Cho Associates is a cash-out refinance mortgage expert. Jammi said the following:

Something you need to consider before moving ahead with a cash-out refinance is the closing costs. FHA closing costs will amount to anywhere from 2%-5% of the loan amount. However, you will not need an inspection which will save you some money and you get a pro-rated discount on the mortgage insurance when you refinance. The closing costs will be paid for out of the cash out funds or will essentially reduce the amount you can cash out.

To qualify for a cash-out refinance mortgage, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at GCA Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

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