July 17, 2014
There’s a type of FHA refinance loan available under the FHA single-family program known as a No Cash-Out Refinance (appraisal required). FHA loan rules for this type of refinance loan include guidelines for the maximum loan amount, how to calculate the existing mortgage debt, and how to deal with subordinate liens such as a home equity line of credit or HELOC.
What is the maximum loan amount for this type of FHA refinancing? According to HUD 4155.1 Chapter Three Section B, we learn the following:
“The maximum mortgage for a no cash out refinance with an appraisal (credit qualifying) is the lesser of the
• 97.75% Loan-To-Value (LTV) factor applied to the appraised value of the property, or
• existing debt.
The total FHA first mortgage is limited to 100% of the appraised value, including any financed upfront mortgage insurance premium (UFMIP). Most FHA mortgages require payment of an UFMIP. The statutory loan amounts and LTV limits described in this handbook do not include the UFMIP. Generally, the maximum mortgage may never exceed the statutory limit, except by the amount of any new UFMIP. However, the maximum mortgage may exceed the statutory limit on certain specialty products.”
FHA borrowers interested in this type of refinancing will have to comply with any FHA appraisal requirements including repairs or corrections before the property is considered eligible for the refinance loan.
The lender must calculate the existing debt on the mortgage which includes the following:
The existing first mortgage must be current for the month due and may include:
− the interest charged by the servicing lender when the payoff will not likely be received on the first day of the month (as is typically assessed on FHA-insured mortgages)
− any prepayment penalties assessed on a conventional mortgage or an FHA Title I loan
− late charges, and
− escrow shortages, and may not include delinquent interest.”
The lender must then calculate pre-paid expenses. According to HUD 4155.1:
“Add the following to the existing first mortgage amount:
• any purchase money second mortgage
• any junior liens over 12 months old
• closing costs
• prepaid expenses (even if the lender refinancing the loan is the servicer)
• borrower-paid repairs required by the appraisal, and
• discount points.”
We will examine the rules for subordinate liens and the guidelines for FHA borrowers who need to buy out an ex-spouse or co-borrower’s equity in the property in our next blog post.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: