Mortgagee Letter 08-40 communicates changes to FHA refinance transactions and are effective January 1st, 2009. Although this update includes guidelines that have not changed, I have listed the unchanged ones anyway as a review for those of you already familiar with FHA guides.

Here are the 10 things you need to know about these changes:

1. The max LTV for rate & term refinances (including streamlines WITH an appraisal) is 97.75%*

2. The max LTV for cash-out refinances is 95%* for loan amounts less than the conforming limit and 85%* for loan amounts at or above the conforming limit. (Must have 12 months seasoning and no 30 day late payments)

3. Two appraisals will be required for all cash-out refinances with an LTV above 85%.

4. The mortgage must be current for the month due.

5. New or current 2nd mortgages are eligible with no maximum CLTV.

6. Loan amount for streamline refinances WITHOUT an appraisal cannot exceed the original loan amount.

7. UFMIP rates: 1.75% for all rate & term and cash-out refinances AND 1.5% for all streamline refinances.

8. The FHA Secure refinance will be terminated.

9. Loan amount CAN include: Closing costs, discount points, current interest, prepayment penalties, prepaids, late charges, and escrow shortages.

10. Cash back on rate & term and streamline refinances CANNOT exceed $500.

*All LTVs are before adding the UFMIP