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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, also referred to as the Federal Assistance Cash-Out Plan (FACOP).
It’s been around for a long time and provides a worthy option for qualified borrowers.
However, online scammers have tried to dupe some homeowners into divulging their personal information by promising free money to applicants if they sign up for the FACOP program. It’s important to separate fact from fiction and know where to turn for a legitimate FHA cash-out refinance loan.
Read on for more details see you can make a better-informed decision and avoid getting scammed.
Understanding the Federal Assistance Cash-Out Plan (FACOP)
The Federal Housing Administration (FHA) has long offered a cash-out refinance loan to eligible borrowers. Another term for this loan is 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,” although some lenders use it while other lenders call it an “FHA cash-out refinance” or use these terms interchangeably.
“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,” explains Steven Parangi, owner of Alpine Mortgage. “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.
Make no mistake: FACOP is a real loan program backed by the FHA, per Parangi.
“However, homeowners should be wary of misleading online scams marketing 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,” he suggests.
Martin Gasparian, attorney and owner of Maison Law, seconds those sentiments.
“Customers should be wary of bad actors framing this as something different by looking closely at the terms and ensuring they are correct,” he says.
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 with unsolicited calls asking for your banking details. 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 FACOP
Don’t let the imposters turn you off from pursuing an FHA cash-out refinance. Many borrowers can benefit from FACOP 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, or using the funds to invest in a new business,” adds Parangi.
The best prospects for getting an FHA cash-out refi include those who have at least 20% equity accrued in their home.
“Also, those with a lower credit score who might not otherwise qualify for a cash-out refi conventional loan are good candidates,” he continues. “That’s because FHA loans are more lenient with credit requirements.”
How to pursue an FHA cash-out refinance
The process of getting a FACOP cash-out refi 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,” notes Martin Orefice, CEO of Rent To Own Labs. “You’ll pay closing costs and sign a bunch of paperwork on the day of closing, and eventually receive your cash-out funds within a few days.”
The Bottom Line
Before committing to a FACOP refi, it’s smart to weigh the pros and cons and consider alternatives. For example, instead of resetting your existing mortgage loan, ponder getting a home equity loan, 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,” recommends Parangi. “Ensure you fully understand the terms, including the interest rate and repayment, too.”
Above all, avoid misleading offers found online or via social media.
“Be cautious of offers that seem too good to be true,” Parangi warns. “And always verify the legitimacy of the lender.”