by Amanda Evans

Created on: March 23, 2009

FHA loans are loans that are offered by the Federal Housing Administration. They have a range of loan programs that people on low or middle incomes can avail of. One of these loan programs is a cash out refinancing loan. This loan programs allows home owners to leverage the equity they have built up in their home.

This cash out refinancing loan allows homeowners to refinance their homes and they can get up to 85%. Homeowners can also include the refinancing fees into their loan which means there are no additional fees to be paid and you actually get the difference between your equity and 85% of your current mortgage appraisal.

There are a number of factors that need to be taken into consideration but the top factor is the fact that the mortgage being refinanced has to be the primary residence of the person borrowing the money. You must also own at least 15% of the equity in your home to be eligible for cash out refinancing.

On the 1st January 2009 an additional requirement was added and this is the second appraisal of your home to validate the value of your property to ensure that the loan you apply for is really 85%. This process adds approximately $300 to the cost of the process. What this essentially means, is that if your cash out refinance and the refinanced loan amount is greater than 85% of the appraised value of your home, you need to get a second appraisal.

The changes that have been implemented also mean that homeowners can avail of 95% LTV (loan to loan valuation) on loans that are under $417,000. Loans over this amount still remain at 85% LTV.

If you are contemplating a refinance loan from the FHA it is important to use this money wisely. Many homeowners use this refinance amount to improve the value of their homes by taking care of home improvements. Others use the money to clear existing debts or for their children's education.

With today's recession taking hold a number of homeowners are using the equity tied up in their homes to avoid foreclosure. There are a large number of homeowners who have been affected by the recession and have lost their jobs. They can use the FHA cash out refinance to give them some much needed cash to help them through these difficult times. If this sounds familiar to you, one word of advice would be to apply for an FHA cash out refinance before you accrue late payments as these can affect your credit worthiness and your loan application.

If you have poor credit and you wish to lower your monthly payments there is another option available to you from the FHA and this is the FHA Streamline Refinance.
This allows you to refinance at a lower interest rate. The good thing about this is that there is no appraisal, no credit underwriting, and no income verification process required.

The truth remains, that the FHA cash out refinancing option is one of the best ways to keep your home in this tough economic time.

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