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FHA guidelines allow for cash out refinancing of up to 85% of your home's current value compared to conventional mortgage limits of 80 percent of current home value.

FHA Cash-out Refinancing for Debt Consolidation

Debt consolidation refinancing through FHA permits a maximum of 85% combined loan-to-value, or CLTV, and offers more options for paying closing costs. Here are basic qualifying requirements for an FHA cash-out refinance.

  • Income and employment: Show steady employment for past two years, preferably with same employer. Demonstrate stable income (preferably increasing) during past two years.
  • Credit reports: FHA loans do not require specific credit scores, but a minimum score of 620 is used as a guideline. Credit reports should show no more than two 30 day late accounts in the past two years.
  • Alternative credit: FHA provides alternative credit underwriting for borrowers without traditional credit. Utility bills, phone and cable bills, and housing payments can be used for establishing alternative credit.
  • Prior bankruptcy and/or foreclosure: If you've filed bankruptcy, or have been through foreclosure, you may qualify for an FHA loan if your bankruptcy was discharged two or more years ago, and a foreclosure was completed three or more years ago. Credit since either of these two events must be perfect, with no negative credit reporting.
  • Income to mortgage debt ratio: Lenders use two ratios, often called the front-end and back-end ratios. The front end ratio is determined by dividing your estimated monthly mortgage payment (principle, interest taxes and insurance) by your monthly gross income (income before deductions). FHA guidelines require a monthly front-end ratio of 29% but that can be stretched if underwriters believe that you are a good risk.
  • Back end ratio: Calculate this ratio by dividing the total of your PITI payment and minimum monthly installment payments by gross monthly income. Debts included are minimum credit card payments, student loans, personal loans, car loans, family support payments, and federal tax lien payments. If you have less than nine months' balance on auto, education, or personal loans, these debts aren't included in the calculations. FHA guidelines permit a maximum back end ratio of 41%.

Contact FHA-approved lenders for mortgage quotes and more information about FHA refinancing options.


Karen Lawson
Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.