FHA Loan Answers: No Cash Out Refinancing With Appraisals

“If the property was acquired less than one year before the loan application, and is not already FHA-insured, the original sales price of the property must be considered in determining the maximum mortgage, in addition to the calculations described previously in this topic.”

So the basic answer is yes, a borrower can apply for FHA refinancing even if the home hasn’t been owned for a full year–however it should be noted that this is an FHA rule, and lender standards may also apply. If the lender does not permit such loans, the FHA cannot force the bank to issue credit.

A common question in these circumstances has to do with whether a borrower can include money spent on repairs or rehab to a property into the new loan amount. FHA instructs the lender, “Using conclusive documentation, expenditures for repairs and rehabilitation incurred after the purchase of the property may be added to the original sales price in calculating the mortgage amount.” The FHA calculates the maximum refinance loan in these cases as follows:

“The maximum mortgage amount will be based on the lesser of the

• total cost to acquire the property, which includes the original purchase price plus any

− documented costs incurred for rehabilitation, repairs, renovation, or weatherization
− closing costs, and
− reasonable discount points, or

• current appraised value, or
• total of all mortgage liens held against the subject property.”

For more information, speak to a loan officer or contact the FHA directly.

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