January 12, 2011
FHA refinancing loans are excellent options for those who want to lower their interest rates, monthly payments or take advantage of the equity built up in the property. There are two basic kinds of FHA refinancing options for qualified borrowers. The FHA defines the two in the simplest terms as “cash out” and “no cash out”.
For cash-out refinancing there are two “tiers” a borrower can consider. One is for a refinancing loan limited to 95% of the value of the home as appraised. For 95% LTV FHA refinancing loans, there are some FHA requirements. They include a restriction on the type of property that can be refinanced–the FHA rules say the mortgage must be on a one or two-unit property.
These loans can’t be applied for until the owner has held the property for at least a year since the date of the loan application. The borrower must not be delinquent on the original FHA loan, which in this case means “the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months, i.e., no payment may have been more than 30 days late and is current for the month due.”
The FHA also stipulates that co-borrowers or co-signers added to the loan must certify they are an occupant of the building.
The other type of cash-out refinancing loan option is for a loan limited to 85% of the appraised value of the property. These 85% LTV FHA refinancing loans are for one to four unit properties that are owner-occupied. The FHA also states, “The loan is limited to a combined LTV (FHA insured first mortgage and any subordinated lien) of 85% of the appraised value provided the borrower has owned the property for at least one year.”
Unlike 95% LTV cash-out refinancing loans, FHA rules allow a FHA mortgage holder to apply for an 85% LTV cash out FHA refinancing loan even if the property has not been owned for a full year.
In these cases, the borrower should know the FHA requires the loan amount be calculated using “the lesser of the appraised value or the original sales price of the property multiplied by 85%.” FHA rules state the full 85% loan calculation (again, based on the appraised value of the home) is available for those who have owned the property for a year or more.
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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