March 14, 2014
FHA home loans and non-FHA mortgages can be refinanced using an FHA cash-out refinance loan. Cash-out refinancing guaranteed by the FHA always require a new credit check and a new appraisal, so borrowers should anticipate the costs of these when preparing for the new loan.
One of the first question a borrower need answered when considering this refinance option is naturally, “How much can I borrow”? According to the FHA loan rule published in HUD 4155.1, the answer to that question depends on how long the borrower has owned the home.
Chapter Three, Section B of this manual under the heading “Cash Out Refinance Transactions” instructs the lender as follows–if the borrower has owned the property for 12 months or less prior to the new loan application, the loan is limited to:
“the lesser of 85% of the
• appraiser’s estimate of value, or
• sales price of the property when acquired.
Note: The sales price does not need to be considered if the property was acquired as the result of inheritance and is, or will become, the heir’s principal residence.”
If a borrower has owned the home for 12 months or more, the mortgage is “eligible for the maximum amount of 85% of the appraiser’s estimate of value.”
FHA loan rules also add the following requirements:
“If a property is encumbered by a mortgage, the refinancing lender must document that the borrower has an acceptable payment history. The payment history is acceptable if the borrower
• is current, and
• has made all payments on the mortgage being refinanced within the month due for the previous 12 months.
For mortgages with more than six months and fewer than 12 months of payment history, the borrower must have made all payments when due. Mortgages with fewer than six months of payment history are not eligible for cash out refinances.”
These are important rules to keep in mind when considering your FHA refinance loan options. Speak to a loan officer for more information on how these regulations may affect your transaction.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get 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.
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