May 12, 2014
There are several FHA refinance loan options. One is FHA Streamline Refinancing, which has no FHA-required credit check or appraisal (though your lender may require one of both).
Another is the FHA Cash-Out refinance loan option, where a borrower can take cash back on the loan once the original loan is paid in full. The cash back on such loans can be used for any purpose acceptable under the terms of the new loan agreement. But there’s another refinance loan option available similar to cash-out in that a credit check is required, but without cash back.
The no-cash-out FHA refinance loan has rules covered in HUD 4155.1, including maximum loan amounts and what can be added to the new loan amount. FHA loan rules also cover what kinds of liens can be subordinate (but still outstanding) to the new loan, HUD 4155.1 Chapter Three Section B says:
“A subordinate lien, including a Home Equity Line of Credit (HELOC), regardless of when taken, may remain outstanding (but subordinate to the FHA-insured mortgage), provided the
- FHA insured mortgage meets the eligibility criteria for mortgages with secondary financing outlined in HUD 4155.1 5.C, and
- combined amount of the FHA-insured mortgage and the entire subordinate lien does not exceed the applicable FHA LTV ratios.The lender must use the maximum accessible credit limit of the existing subordinate lien to calculate the Combined Loan-to-Value (CLTV) ratio.”
How does the lender arrive at the maximum mortgage amount for an FHA refinance loan that features no cash out? According to Chapter Three, Section B:
“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).
Most FHA mortgages require payment of an UFMIP. The statutory loan amounts and LTV limits described in this handbook do not include the UFMIP.”
Chapter Three adds that in general, the FHA maximum mortgage amount “may never exceed the statutory limit, except by the amount of any new UFMIP. However, the maximum mortgage may exceed the statutory limit on certain specialty products.”
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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