September 27, 2019
FHA home loan rules generally state that a borrower should be prepared to live in the home they wish to refinance with an FHA cash-out refinance loan for as long as 12 months first. That is a general rule and not specific to inherited properties.
HUD 4000.1, the FHA loan handbook for single-family home loans, instructs the lender that it’s required to document, “that the Borrower has made all payments for all their Mortgages within the month due for the previous 12 months or since the Borrower obtained the Mortgages, whichever is less.”
These rules add that all payments for the property to be refinanced “must have been paid within the month due for the month prior to mortgage Disbursement.”
The FHA loan rules for payment history on cash-out refinance loans also includes a requirement of a minimum of six months of mortgage payments regardless of the nature of the property.
And those who have inherited a home that is owned “free and clear” may be able to apply for a cash-out refinance loan depending on the nature of the property and the lender’s willingness to refinance.
FHA Loan Rule Exceptions For Refinancing Inherited Properties
FHA loan rules for refinancing properties acquired via inheritance say that the loan applicant “…is not required to occupy the Property for a minimum period of time before applying for a cash-out refinance”. But there is a catch.
This rule is applicable only in cases where the Borrower has not “treated the subject Property as an Investment Property at any point since inheritance of the Property.”
HUD 4000.1 also reminds the lender that in cases where the borrower rents the Property following an inheritance, “the Borrower is not eligible for cash-out
And let us not forget the occupancy requirement for FHA refinance loans; FHA refi loans (for inherited homes AND those that are purchased by the borrower) require occupancy. FHA Cash-out refinance loans are intended for owner-occupiers.
From HUD 4000.1:
“The Mortgagee must review the Borrower’s employment documentation or obtain utility bills to evidence the Borrower has occupied the subject Property as their Principal Residence for the 12 months prior to case number assignment” for the refinance loan transaction.
Talk to a participating FHA lender today about your cash-out refinance options and don’t forget that you can shop around for a refi loan; you don’t have to use the original lender to refinance.
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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