August 12, 2015
In recent posts we have discussed the maximum mortgage amount for FHA home loans. The borrower is required to make a minimum down payment on all new purchase FHA mortgage loans (3.5%) so that the maximum financing allowed would be 96.5%.
Some borrowers may have to make larger down payments depending on credit scores and credit history. The FHA’s loan-to-value maximums can also be different depending on the type of transaction. With those ideas in mind, what are the FHA loan rules for refinance loans?
For non-streamline, appraisal-required FHA refinance loans that feature no cash back to the borrower, FHA loan rules say 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.”
That information is found in HUD 4155.1, Chapter Three, Section B, which also adds, “The total FHA first mortgage is limited to 100% of the appraised value, including any financed upfront mortgage insurance premium (UFMIP).”
Chapter Three points out that typically, FHA mortgages will require payment of the Up Front Mortgage Insurance Premium. “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.”
Some circumstances require some additional calculations. For example, if the applicant’s original loan was “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.”
“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 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.”
As you can see, the maximum mortgage calculation on an FHA refinance loan can be a bit complex depending on circumstances. Another reason to take plenty of time in advance to prepare for the loan and discuss your needs with the lender. We’ll explore similar issues on cash-out refinance transactions in another blog post.
Do you have questions about FHA refinance loans? Ask us in the comments section.
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.
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