Homeowners enjoy the benefits of investing in their property year after year. For some, there comes a time when that investment can come in handy. Refinancing with an FHA loan can prove to be an effective way to put that equity to work.
Sending a child to college, consolidating bills, taking a much needed vacation, or making home improvements are some of the ways homeowners tap into the equity they have accumulated in their home to help with these expenses. Keep in mind that FHA refinancing is only available to homeowners who are currently using their home as their principal residence.
FHA offers several different options to homeowners who are considering refinancing their current mortgage:
CASH OUT REFINANCING
This refinancing option is especially beneficial to homeowners whose property has increased in market value since the home was purchased. A Cash Out refinance allows homeowners to refinance their existing mortgage by taking out another mortgage for more than they currently owe, therefore repaying their current mortgage and using the equity they have built up in their home to take out another larger mortgage. This allows the homeowner to access the equity they have built up in their home and put it to good use where needed.
In order to get the most benefit from refinancing your mortgage, it is often best to consider refinancing after you have had time to build up a significant amount of equity in your home. If the property was purchased more than one year prior to the refinance, the homeowner can refinance the existing mortgage for up to 85 percent of the appraised value plus the allowable closing costs, which vary from state to state.
STREAMLINED REFINANCING BASICS
This refinancing option is considered streamlined because it allows you to reduce the interest rate on your current home loan quickly and oftentimes without an appraisal. FHA Streamlined Refinance also cuts down on the amount of paperwork that must be completed by your lender saving you valuable time and money.
In order to qualify for a Streamlined Refinance your original home loan must be an FHA loan in good standing and the refinance must lower your monthly interest payments. This type of refinancing option reduces your monthly expenses by lowering your payments but there is no option to receive cash back. This works well for people who are in good financial standing with no significant debt because it allows you a little extra money each month that can be put to good use elsewhere.