Cash-Out FHA Refinance Mortgage Guidelines And Requirements

This Article Is About Cash-Out FHA Refinance Mortgage Guidelines And Requirements

Homeowners with a current FHA loan and had it for at least six months are eligible to do an FHA Streamline refinance mortgage and not Cash-Out Refinance Mortgage.

  • An FHA streamline mortgage is available for homeowners who had their FHA loan for at least six months
  • HUD, the parent of FHA, requires all homeowners been timely on their mortgage payments for the past 12 months
  • There is no appraisal required and no income verification on FHA Streamline Mortgages
  • Homeowners can be late on monthly payments and have low credit scores and still qualify for an FHA streamline refinance mortgage
  • They can qualify for FHA Streamline Refinance as long as their mortgage loan payments have been current for the past 12 months
  • There is no income verification needed either
  • Homeowners do need a full-time job
  • But the income will not be verified so high debt to income ratios will not be an issue
  • FHA streamline refinance mortgage loans are only for rate and term refinance mortgage loans only
  • Cash-out refinance mortgage does not apply
  • A rate and term refinance mortgage is only limited up to a $2,000 cash-out limit
  • Any proceeds over $2,000 from the proceeds of a refinance mortgage is considered a cash-out refinance mortgage

FHA Refinance Mortgage Lending Guidelines

Cash-Out FHA Refinance Mortgage

There are strict cash-out refinance mortgage lending guidelines and seasoning requirements on FHA loans.

  • Homeowners do not need a current mortgage in order to do a cash-out FHA refinance mortgage
  • Any cash-out refinance mortgage loan to value cannot exceed 80% of the appraisal on FHA loans
  • If the property has been owned by a homeowner for less than one year, the new cash-out refinance needs to be either the lesser of 80% loan to value of the appraised value or 85% of the original purchase  price
  • This poses a problem for a homeowner who purchased a foreclosure or short sale at a low price and invested tons of money rehabbing the property

For example, here is a case study:

  • if a home buyer purchased the property at $100,000
  • invested $100,000 in doing major renovations
  • has it appraised at $200,000
  • wants to do a Cash-out FHA refinance mortgage in less than a year after they made the home purchase
  • then they are limited to 85% of the appraised value or 85% of the purchase price, whichever is lower
  • In this case, if the cash-out FHA refinance mortgage is getting refinanced in less than 12 months of the purchase date, then the homeowner will be limited to 85% of the purchase price
  • Not 85% of the $200,000 appraised value
  • For the homeowner to get an 85% cash-out refinance mortgage loan, then the homeowner has to wait at least 12 months in order to initiate the cash-out FHA refinance mortgage

If the property was inherited and the heir is using it as an owner occupant home, then the cash-out FHA mortgage seasoning requirement is exempt.

Conventional Loan Refinancewhat are Conventional Loan Refinance

Conventional guidelines differ from FHA refinance mortgages.

  • With conventional loans, homeowners can do a rate and term refinance mortgage loan as well as cash-out refinance mortgage with six months seasoning
  • Maximum loan to value on conventional refinance mortgages are 80% loan to value based on the appraised value
  • Some conventional mortgage lenders may require two appraisals if the conventional refinance mortgage loan application is just six months from the original purchase date

Homeowners who need to qualify for a Cash-Out FHA Refinance Mortgage with a direct lender with no mortgage lender overlays can contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected]

Related> Your guide to FHA loans

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