August 8, 2014
One important question on the minds of all borrowers looking to refinance a home loan with an FHA loan is “how much can I borrow?” In many cases this question is important to the borrower because he or she wants to know if there will be cash back available on the transaction.
What does that mean? For some borrowers, the question is whether or not the FHA will permit the borrower to apply for a loan amount larger than the existing debt on the home so the applicant can take the excess loan amount in cash.
In general that practice is not permitted, but cash back to the borrower may be allowed in specific ways under the FHA loan program regulations. For example, for a cash-out refinance loan, the home would get an appraisal and the loan amount would be based on a percentage of the appraised value of the property.
The amount of that percentage depends on a variety of circumstances including the age of the mortgage and whether there are subordinate liens or other issues. Depending on how much the existing loan has already been paid down, the borrower may get cash back after the existing debt has been satisfied in full.
For other types of FHA refinance loans, the percentage may be a fixed amount. For example, for No-Cash Out refinance transactions with an appraisal, the FHA loan rules printed in HUD 4155.1 Chapter Three state:
“The maximum mortgage for a no cash out refinance with an appraisal (credit qualifying) is the lesser of the
• 97.75% Loan-To-Value (LTV) factor applied to the appraised value of the property, or
• existing debt.
The total FHA first mortgage is limited to 100% of the appraised value, including any financed upfront mortgage insurance premium (UFMIP).”
For more information on FHA refinance loan maximums, speak to a loan officer about your specific situation and your financial goals.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting 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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