July 9, 2013
When borrowers choose the refinance a home loan using an FHA cash-out refinancing loan, many come to the application process not sure how much they can apply to borrow. For FHA cash-out refinance loans, there are specific rules found in HUD 4155.1 that govern the amount of the loan.
There’s no single, set dollar amount limit placed on cash-out refinancing. Instead, the FHA/HUD provide a set of guidelines that determine the maximum loan-to-value percentage based on how long the borrower has owned the home and lived there as the principal residence, and how much the home has been valued at based on a new FHA appraisal.
HUD 4155.1 Chapter Three Section B states, “If the property has been owned by the borrower as his/her principal residence for 12 months or more…the mortgage is eligible for the maximum amount of 85% of the appraiser’s estimate of value.”
But what happens when the borrower has been owned and occupied for less than 12 months? According to Chapter Three, the new 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.”
It’s important to note that FHA loan rules in such cases specify 12 months “preceding the date of the loan application”. The date you turn in your FHA refinance loan application is the date that will be used to calculate the maximum loan figure based on the rules above. In cases where the borrower is applying for a refinance loan and has owned the home for fewer than 12 months, additional considerations apply, according to a section in Chapter Three titled, “Ineligibility of Delinquent Borrowers and Payment History Requirement for Cash-Out Refinances” which states:
“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.”
Check with your loan officer for additional information on these requirements and any additional standards your financial institution might have above and beyond these FHA loan program minimums.
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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