Financing in Birmingham>Question Details

Waldrop1994, Home Buyer in Birmingham, AL

Can I refinance a FHA loan using FHA cash out option. Take the extra cash and use it as a down payment towards a conventional loan for another home?

Asked by Waldrop1994, Birmingham, AL Wed Aug 4, 2010

My spouse took out a FHA loan in 1996 with an interest rate at 8%. At the time it was only her and the home was to be a starter home. Well 14yrs later we're cramped and I am looking to move my family and I into a larger home because we have outgrew our current one(2 bedroom home. wife,husband,5yr old son,13yr old daughter). We inquired about a FHA and Conventional loan through our credit union and was told there would be a 20% downpayment for a conventional loan using my credit score of 622 which is by far the lower of our scores. They say we cant have 2 FHA loans, but i'm not on the current FHA loan. We really dont want two mortgages either. Thanks in advance for your help.

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The other angle is since you are not on the current loan, do you make enough income to qualify for the payment on the new house in your name only? If so, your wife could conceivably refinance the existing loan for cash out up to 85% of the value and get the down payment for the new house and get a much lower interest rate. But do you really want to be a landlord? It's not for everybody....

I represent Wells Fargo Home Mortgage and am licensed in Alabama if you would like to discuss.
Good luck.
0 votes Thank Flag Link Fri Aug 6, 2010
Hi, Waldrop1994

Your bank is in error. FHA guideline are more than clear on this: If you need another home because your family have outgrown your current one, and you can document that with tax returns (showing number of dependents and (if adults) number residents) and a MLS listing ticket, public record assesment page, and or appraisal to confirm number of bedrooms, you can qualify for a 2nd FHA mortgage. However, due to your children ages, despite their opposite sexes, some lenders may feel they can still share a single bedroom.
0 votes Thank Flag Link Thu Aug 5, 2010
Thanks everyone!!

@ Cheryl. We are not in a position where we would need to sell or trying skip out of debt in any kind of way, We're able to afford our mortgage. From my understanding a short sell is when you can't . Right? We are simply in a home that we owe on and are looking to move into another that will be ready within a months time and we are sure this home won't be on the market long at the price they want for it.

To simplify my initial question. Can I use the extra cash on a cash out refinance to pay the down payment on a conventional loan that will pay for the new home and also pay for the old home. We then will sell the old home and put the money towards the principal of the new home.

Thanks again everyone.
0 votes Thank Flag Link Wed Aug 4, 2010
Hi - if she bought in 1996 you may be better off selling the current home. If there is equity to consider the FHA cash out you should be able to sell and either clear some money or at least not be a short sale situation. It would be much safer to sell the current home, use both incomes toward a new home and mortgage. Interest rates are so low it is a great time to buy for both a new owner of your existing home and your next purchase. The reason you can't have two FHA loans is that they are intended for owner occuppied properties. If you clear enough to do a conventional loan you could save on PMI but if not you could do the FHA loan.

The idea of borrowing on an existing home to buy a second could put both homes at risk.
0 votes Thank Flag Link Wed Aug 4, 2010
Hi it will be smart for you to refinance and get a lower rate right away.


Go to. http://www.amerisave.com, your local bank where you bank.
Also try out http://www.penfed.org

Rates are now below 5%, so paying 8% on your current mortgage makes no sense.
Your score of 622 is low though.

So first things first refinance your current loan.
Then I am sure you will have a better chance to qualify based on your income and total out goings per month.

Best regards
Perry
Web Reference: http://www.ruthandperry.com
0 votes Thank Flag Link Wed Aug 4, 2010
Waldrop,

You have a difficult situation at best. With a credit score of 622 you will most certainly be restricted to an FHA loan. There is a little known provision that allows you to purchase another home using FHA financing if you can prove you have outgrown the existing FHA financed home. The burden of proof will be on you and no lender will take such an exception lightly.

You might want to consider a FHA streamline refinance using a 5 year ARM (currently around 3.5% w/0 points). You will be able to save some serious money during the upcoming months. In the mean time, do everything in your power with the extra money to improve your credit situation in an effort to improve your credit scores. You really need to set your focus on a credit score of at least 680 to help your cause. Your current score of 622 puts you on the edge of "no man's land". Good luck and stay focused!
Web Reference: http://www.frankruzicka.com
0 votes Thank Flag Link Wed Aug 4, 2010
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