April 21, 2021
How much can you get to refinance your home loan? Much depends on the nature of the refinance loan you seek–cash out, no cash out, simple refinance, FHA Streamline refinance loans, etc. What is the maximum loan-to-value ratio for an FHA refinance loan?
FHA Refinance Loans Have Maximum Loan-to-Value Ratios
FHA loan rules vary depending on the nature of the refinance loan. For example, appraisal-required cash out refinance loans? Cash-out refi mortgages guaranteed by the FHA feature an 85% loan-to-value ratio. Simple refinances have a maximum mortgage loan-to-value ratio of 97.75 percent for Principal Residences and 85 percent for HUD-approved Secondary Residences.
Streamline Refinances
For owner-occupied Principal Residences the “maximum Base Loan Amount” for Streamline Refinances is the lesser of the outstanding principal balance of the existing Mortgage as of the month prior to mortgage Disbursement; or the original principal balance of the existing Mortgage.
What’s the maximum loan-to-value ratio for a no cash-out rate-and-term refi? FHA loan rules in HUD 4000.1 state the maximum LTV is 97.5% for these loans.
That number falls to 85 percent “for a Borrower who has occupied the subject Property as their Principal Residence for fewer than 12 months prior to the case number assignment date; or if owned less than 12 months, has not occupied the Property for that entire period of ownership”.
Mortgage Insurance Premiums
FHA mortgages require payment of the Up Front Mortgage Insurance Premium. However, the UFMIP is not included when calculating the maximum financing amount. If you exceed the maximum mortgage amount when financing the mortgage insurance premium, you don’t have to worry about higher interest rates or a bigger down payment.
Your lender might have some extra math to do, especially if the applicant’s original loan was less than a year before the loan application, and is not already FHA-insured. In such cases the original price of the home may need to be considered in the maximum mortgage calculation.
Some borrowers may find that the costs of repairs and rehabilitation “incurred after the purchase of the property” may be allowed as part of the original sales price when the lender needs to begin calculating the mortgage amount.
The maximum mortgage amount should be calculated as 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 “the total of all mortgage liens held against the subject property.”
When figuring your maximum refinance loan amount there may be other variables to contend with–state law, lender standards, and other variables may affect your home loan transaction. Always ask the lender about things you don’t understand in the home loan process–you should get answers to your questions so you can clearly understand the transaction you are committing to.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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