Eager to refinance your existing mortgage loan and take extra cash out at closing? Take a closer look at the FHA cash-out refinance loan, available through FHA-approved lenders.
It’s been around for a long time and provides a worthy option for qualified borrowers.
Recently, some lenders and online sources have used the term “Federal Assistance Cash-Out Plan (FACOP)” to describe this program. However, “FACOP” is not an official FHA or HUD term.
More concerningly, scammers have attempted to mislead homeowners by marketing fake “FACOP” offers that claim to provide free money. It’s important to separate fact from fiction and know how to safely pursue an FHA cash-out refinance.
Read on for more details so you can make an informed decision and avoid potential scams.
- The FHA Cash-Out Refinance is a legitimate loan program, but some lenders may incorrectly refer to it as FACOP.
- FHA cash-out refinances allow homeowners with lower credit or who many not qualify for conventional options tap into home equity.
- Scammers use fake “FACOP” offers to steal personal info; work only with FHA-approved lenders.
Understanding the FHA Cash-Out Refinance
The Federal Housing Administration (FHA) has long offered a cash-out refinance loan to eligible borrowers. Some lenders and online sources have recently referred to this as the Federal Assistance Cash-Out Plan (FACOP).
Note that FHA and the U.S. Department of Housing and Urban Development (HUD) don’t officially use the term “FACOP.”
An FHA cash-out refinance is a loan that allows homeowners to refinance their existing mortgage for more than they currently owe. The difference between the new loan amount and the existing mortgage balance is provided to the homeowner in cash at closing.
This option is particularly beneficial for homeowners who want to leverage their home equity for various purposes, such as home improvements, debt consolidation, education expenses, or other significant financial needs.
Your existing mortgage does not need to be an FHA loan to qualify for an FHA cash-out refi. Conventional loans also qualify. For full eligibility requirements and guidelines, check out our FHA cash-out refinance guide.
Beware of FACOP scams
Unfortunately, con artists online have tried to fool consumers into falling for marketing gimmicks and scams, advertising free money if they enroll in a FACOP plan through their site. But what they’re actually trying to do is steal sensitive personal information revealed by naïve homeowners who fall for these fraudulent practices.
Case in point: Over the last two years, numerous online ads and social media posts have been circulating, claiming that homeowners can receive up to $185,000 in cash through a government-insured program called the “FaCOP Refi Initiative.”
The online advertisements fail to mention that homeowners must apply for a mortgage refinance with an FHA-approved lender and meet specific criteria to qualify for the cash. You can search HUD’s database of FHA-approved lenders here.
Make no mistake: legitimate lenders may offer you a FACOP refinance. But, it’s really just the FHA cash-out refinance.
Homeowners should be wary of misleading online scams that promise free money. Only FHA cash-out refinances insured by the FHA are real, and you should always work with a reputable FHA-approved lender.
In other words, don’t just click on an attractive refinance offer online and then begin filling out a form or divulging personal information. Do your due diligence first and research various FHA-approved lenders that offer an FHA cash-out refi/FACOP loan.
You’ll know if a FACOP/FHA cash-out refinance loan is legit if the loan/program is backed by the FHA and offered by an FHA-authorized lender.
How to prevent getting scammed
The Better Business Bureau (BBB) offers the following best practices to avoid getting hoodwinked by FACOP fraudsters:
- Remember that free money is rarely easy to obtain. Scammers often claim that government grants and programs are readily available, but that’s not always true. If someone is reaching out to offer you money, it’s a clear warning sign that you’re dealing with a fraudster.
- Beware of look-alike agencies. Scammers might claim to be from non-existent entities like the “Federal Grants Administration.” Always verify the legitimacy of an agency by doing your own research and contacting them directly using independently obtained contact information.
- Be cautious when asked for your banking details on unsolicited calls. Scammers may cold call, asking basic questions to see if you qualify for a grant, and then request your banking information under the guise of needing to collect a one-time processing fee or to directly deposit your money.
If you find or suspect a FACOP scam, report it to the Federal Trade Commission (FTC) here and to the BBB here.
Good candidates for FHA Cash-Out Refinances
Don’t let the impostors turn you off from pursuing an FHA cash-out refinance. Many borrowers can benefit from this program and, hopefully, qualify for a lower interest rate and/or better terms in addition to tapping equity pocketed as cash at closing.
Good reasons for pursuing an FHA cash-out refinance include:
- Funding renovations or repairs that can increase your home’s value
- Paying off high-interest debts to reduce your overall financial burden
- Covering costs for higher education
- Using the funds to invest in a new business
Those with at least 20% equity accrued in their homes are the best prospects for getting an FHA cash-out refi. Additionally, those with a lower credit score who might not otherwise qualify for a conventional cash-out refinance are good candidates, since FHA loans are more lenient with credit requirements.
FHA guidelines allow for cash-out refinances with a credit score of 500, although most lenders, including Refi.com, require 620 or higher.
Related: How to use a cash-out refinance to buy a second home.
How to pursue an FHA cash-out refinance
The process of getting an FHA cash-out refinance is nearly identical to pursuing any other cash-out refinance.
You’ll need to shop around and find a lender that offers FHA cash-out refinances, compare rates and terms carefully, get pre-qualified, and then commit to a mortgage. You’ll need to have your home appraised, wait for an underwriting decision, and, if approved, proceed to closing.
You’ll pay closing costs and sign paperwork on the day of closing, and eventually receive your cash-out funds within a few days.
Related: How much does it cost to refinance a mortgage?
The bottom line
Before committing to an FHA cash-out refinance, it’s smart to weigh the pros and cons and consider alternatives. For example, instead of resetting your existing mortgage loan, consider getting a home equity loan or home equity line of credit (HELOC), or personal loan.
Also, think about how a new FHA cash-out refinance loan will affect your long-term financial goals and plans for your property. Ensure you fully understand the terms, including the interest rate and repayment schedule.
Above all, avoid misleading offers found online or via social media. Be cautious of offers that seem too good to be true and always verify the legitimacy of the lender.
Ready to tap into your home equity? Refi.com specializes in refinance loans that help you achieve your financial goals. Start your FHA cash-out refinance application today and find out how much cash you could access at closing.
