With the ever changing mortgage market increasing credit scores and down payment requirements, it is no surprise that the U.S. Department of Housing and Urban Development (HUD) released limits on the FHA cash out refinance on March 12, 2009. Below details the specific changes that take affect for all new case number assignments made on or after April 1st 2009.
The biggest change is a reduction in the loan to value ratio which, currently at 95%, will be reduced to 85%. Note-The 95% FHA cash out refinance currently available requires 2 property appraisals. The letter states that this change was made because the housing market continues to deteriorate and this is HUD's reaction to limit exposure to undue risk. The good news is that at the moment this is a temporary change. FHA will continue to analyze the housing market to determine when/if they need to take permanent action.
To qualify for an FHA Cash Out Refinance
The loans total loan to value (LTV) must be at 85% or below including any subordinate lien. FHA has made special exception for modified subordinate liens stating the a modified subordinate lien (usually a reduction in the subordinate lien) that is re-executed at closing, FHA does not consider a new subordinate lien.
The subject property must be owned for 12 months or more from the loan application date in order to use the maximum of 85% of the appraisers estimate of value in the new mortgage. If the home has been owned for less than 12 months the refinance is limited to the lesser of 85% of the appraised value or the original sales price. If the home is an inheritance and is or will become the heir's primary residence the maximum loan to value is 85%.
Borrowers who are delinquent are not eligible for an FHA Cash Out Refinance.
Homes that exceed $417,000 and are in a declining area will require a second appraisal.
Non Occupant Co-Borrowers can not be added to the loan to secure financing. All parties that desire to be added on the new FHA loan are required to occupy the property as their primary residence.
Any property that is owned free and clear is eligible for an FHA Cash Out Refinance.
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