money·2 min read

Should I Cash Out My Home’s Equity?

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Design: theSkimm | Photo: iSock
May 9, 2022

If you’re a homeowner in need of extra funds, tapping into your home equity can help.It isn’t a one-size-fits-all solution. But if you’re searching for a large loan, an FHA cash-out refinance can have more benefits than going with a personal loan or credit card from a traditional lender. Hello, upgrade.

What’s an FHA cash-out refinance?

It’s a refinance loan backed by the Federal Housing Administration (aka the FHA). And since it’s insured by the FHA, you might get lower interest rates than those offered through other refinance options. Bonus: you don’t need perfect credit to qualify (more on that in a minute). 

Are there any downsides?

You’ll have to pay closing costs and fees all over again, which can decrease your loan amount. If you default, the lender could foreclose on your home because it serves as collateral. And you can expect higher mortgage payments.

Got it. So how do I apply?

If you’ve thought about it and an FHA cash-out is right for you, the first step is finding an FHA-approved lender in your area. Try the Hud Lender Search to locate a lender. Then, you have to qualify.

How do I qualify for an FHA cash-out refinance?

The FHA may be lenient, but you’ll still have to meet their criteria.Here’s what you’ll need:

Time in your home

The FHA requires you to have lived in your home for at least 12 months before refinancing.


FHA cash-out refinancing isn’t an option for investment properties or vacation rentals. Only your primary residence is a go.

Payment history

Have you been making your mortgage payments on time for the past year? If not, you may not qualify to cash out.

Loan to value

The amount you owe on your mortgage can’t be more than 80% of your home value.

Credit score

On a scale of 300-850 (hint: that's the range for FICO credit scores, which are most commonly used by lenders),you need at least a 500 credit score to qualify. PS: Here’s how to boost your credit score, if you aren’t quite there yet.


We could all use a little extra sometimes. And if you’re a homeowner in need of a lot extra, an FHA cash-out refinance may be worth considering. It comes with a few downsides, though, so be sure to weigh your options before you look for a lender.

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