November 10, 2011
FHA refinancing loans have maximum loan amounts in the same way new purchase FHA mortgage loans do. Maximum refinancing loan amounts can be complicated depending on the type of loan and the situation the borrower is in when they want to refinance the property.
A borrower’s individual circumstances can also affect basic eligibility for some types of refinancing loans, which is why it’s a very good idea to begin planning early for a refinance loan application.
For example, it’s one thing for a home owner to apply for FHA Streamline Refinancing for the home they own and occupy–the rules are fairly straightforward. But what happens when someone who purchased an investment property needs to occupy that property as their primary residence and refinance the loan? According to FHA loan rules, the maximum loan amount can be affected by how long the owner has been living in the building.
“If the borrower has occupied his/her former investment property for 12 months or more prior to the loan application date of the refinance” FHA loan rules state, the borrower may be eligible for “maximum financing at the same level as an owner-occupant.”
But if the borrower has been living in the home as the owner/occupant for less than one year prior to the loan application? FHA refinancing rules state, “rate and term refinancing only, with an LTV not to exceed 85%”.
The key variable in the rules mentioned above is how long the borrower has been living in the property prior to the application for the refinancing loan–timing is everything in this particular situation. Planning is key when it comes to becoming eligible for the maximum loan amount (at least where occupancy is concerned.) Other factors could affect your eligibility for maximum financing, but in this case occupancy time is one area where the borrower can make choices that directly affect the loan.
Another factor that can affect certain types of refinancing loans? A borrower’s income. Consider this from HUD manual 4155.1 for FHA lenders:
“Cash out refinancing for debt consolidation represents considerable risk, especially if the borrowers have not had a corresponding increase in income. Careful evaluation of this type of transaction is required.” Borrowers are encouraged to prepare early for all home loan transactions, and examine budgets, additional costs, the effect of including loan fees and points into the loan amount, etc. Don’t commit to a new loan until you’ve examined your budget, credit report, and how the new loan amount will affect your bottom line.
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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