As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.
FHA loans have several benefits. You don’t have to have perfect credit in order to qualify. When buying a home, you can also make a down payment as low as 3.5%. One thing the average homeowner probably doesn’t realize are the benefits of taking cash out of your home with an FHA loan.
We’ll go over some of the requirements for converting your equity into cash with FHA at Quicken Loans and then take a look at how it compares to a couple of other loan options.
FHA Cash-Out Refinances
There’s one key advantage to taking cash out with an FHA loan that many people probably overlook. You can refinance with a loan-to-value (LTV) ratio as high as 80%, meaning you can leave as little as 15% equity remaining in your home. This means you can use more of your home’s value to finance a remodel, supplement the college fund or provide a boost for your retirement.
This makes it one of the better loan options available out there in terms of the amount of equity you’re able to utilize. That said, there are a few important requirements you need to know about.
Quicken Loans requires that you have a minimum credit score of 620 – 640, depending on your situation. There are also some different requirements for how high your debt-to-income (DTI) ratio can be given your other qualification factors. One of our Home Loan Experts can help you take a look at which mortgage options make the most sense for you.
Comparing FHA to Other Options
FHA loans can be a great option for taking cash out of your home, but they’re not the only option. Let’s take a look at how FHA loans stack up against the competition.
FHA loans let you leave as little as 20% equity in your home when you take cash out. With conventional loans from Fannie Mae and Freddie Mac, you have to maintain at least 20% equity in your home when taking cash out. However, there’s one key trade-off between an FHA and conventional loan that you need to consider.
With an FHA loan, when you take cash out, you’re going to pay mortgage insurance premiums for at least 11 years or until the property is paid off through a refinance or sale. There’s no mortgage insurance when you take cash out on a conventional loan because you continue to have 20% equity.
The good news is that provided you qualify, you can refinance out of the FHA loan whenever you want. If you refinance into a conventional loan after reaching 20% equity in your home again, you don’t have to worry about mortgage insurance payments.
If you’re a veteran, qualified active-duty service member or surviving spouse, using a VA loan to take cash out is definitely worth looking into.
VA loans let you have an LTV as high as 100% in a cash-out transaction if you have a 680 FICO® Score. Eligible active-duty servicemembers, reservists, veterans and qualifying surviving spouses of those who passed in the line of duty or as a result of a service-connected disability can take advantage of this loan option. If you have a FICO® of 620 or higher, you can still take out up to 90% of your equity with a VA loan.This means you need only 10% equity remaining. You can use more of your equity to do whatever you need.
Additionally, instead of monthly mortgage insurance payments, VA loans have a one-time funding fee that’s a percentage of the loan amount. You can choose to pay this at closing or have the cost financed over the life of the loan.
Now that you have the scoop on taking cash out with FHA loans, you can decide whether this loan option is right for you. On the other hand, maybe a conventional or VA loan makes more sense.
If you would like to go over your loan options online, you can get a complete refinance approval through Rocket Mortgage® by Quicken Loans®. You can also get started by talking to one of our Home Loan Experts at (800) 785-4788. We’ll be happy to answer your questions in the comments.
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