Do you have an FHA loan? Are you thinking of refinancing to
get a better rate, change the term of the loan or switch from a variable rate
loan to the stability of a fixed? Then you may also want to tap into the equity
you have while you’re in the process of refinancing your existing FHA loan.
There are two types of FHA refinancing. The most common is what lenders refer
to as a “streamline” refinance. A streamline is an option when replacing one
FHA loan with a new one. It’s referred to as a streamline due to the reduced
documentation needed to close the loan.
How much documentation is reduced? There are no credit
report or credit score requirements. There is no need to verify employment or
even income. There’s no need for an appraisal, either. As long as there is no
more than one payment made more than 30 days past the due date over the past 12
months and no such payments within the previous six, the existing FHA loan is
eligible for the streamline process.
However, should you decide that you want to pull some equity
out while refinancing in the form of cash in your pocket, the loan will be
processed in a similar manner as a purchase loan. This means you’ll need to
provide recent pay check stubs and bank statements. Your lender will also order
an appraisal to get an update on the current market value of your home.
Let’s say you purchased your home using an FHA loan a few
years ago. Rates have fallen and you decide it’s time to refinance and switch
to a 15 year loan. Your property value has increased since you purchased the
home and after the appraisal has been completed you see there is an additional
$50,000 in equity you gained over time. You have the ability to borrow enough
not just to pay off the existing FHA loan but take care of your closing costs
as well. You can then take part or all of that $50,000 as cash in your bank
When you pull out cash during an FHA refinance you can use
the money for anything you want. You can pay off higher interest rate credit
cards, take care of outstanding student loans, pay off your automobile loan or
even take a family vacation. The equity is yours and you can do whatever you
want to with it.