A "FHA cash out refinance" is any refinance through which a home owner borrows more than they owe on their current mortgage. This can be for any reason- home improvement, debt consolidation, or cash-in-hand. Financing of closing costs does not designate a transaction as cash out*.
In April 2009, FHA lowered it's maximum loan-to-value ratio on an FHA cash out refinance to 85%. Loan-to-value ratio (LTV) is the percentage of your loan amount compared to your home's value.
Prior to April, it was possible to borrow up to 95% LTV, but lenders were requiring two appraisals if your LTV was 85.1%-95%. Currently only one appraisal is necessary on an FHA cash out refinance.
However, it is important to note that your combined-loan-to-value ratio (CLTV) can exceed 85% with most lenders. CLTV means the combined ratio of all loans on the home, including 2nd mortgages and home equity loans, compared to the appraised value.
One more important rule that you need to know about is that lenders will not allow you to use your home's appraised value until you have lived in the home for at least 12 months. This is referred to as "seasoning." Until the 12 month mark, your home's sales price will be used as it's value, even if you have made home improvements or your neighborhood is appreciating in value.
Our FHA Home Loan Experts are standing by to help you with your FHA cash out refinance scenario. Simply fill out our quick quote form on the right and we will be in touch soon to answer your questions!
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* FHA-to-FHA Streamline Refinances now require an appraisal to roll in closing costs.
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