FHA Cash Out Refinance Requirements Versus Other Loan Programs

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FHA Cash Out Refinance Requirements

This BLOG On What Are The FHA Cash Out Refinance Requirements Versus Other Loan Programs Was Written By Gustan Cho NMLS 873293

Home prices have been appreciating since 2011 with no signs of correction. It seems like the real estate market is going strong. Housing demand for housing throughout the United States has been consistently strong. The Federal Housing Finance Agency (FHFA) has increased conforming loan limits for two consecutive years in a row. HUD, the parent of FHA, has followed FHFA lead and increased FHA Loan Limits for two years in a row as well. The reason for FHA and Conforming Loan Limits increase is due to the rapidly rising housing values throughout the United States.

  • The real estate meltdown of 2008 has crushed home values where some homes have dropped 50% in value in some areas of the country
  • Millions of homeowners were stripped of their hard earned equity in their homes
  • Others could no longer afford their homes due to having mortgage loans that were substantially higher than the value of their homes
  • Countless of homeowners had and still have sub-prime mortgage loans with teaser rates
  • Teaser rates are home loans with a low negative amortizing mortgage rate
  • After the initial fixed rate negative amortization period, the new adjusted payment doubled or tripled than their starter interest rate
  • With the real estate meltdown and credit and financial collapse, many home buyers during the real estate meltdown had the opportunity to purchase a home at rock bottom prices
  • Home buyers who purchased their homes in 2009, 2010, 2011, 2012, and 2013 have seen their home values rebound from the real estate market collapse
  • They can now think about refinancing their current home loans
  • Some can even do a cash out refinance loan
  • Home values have been increasing double digits in many parts of the country
  • Many homeowners who had underwater mortgages are now above water
  • These happy homeowners can see the light at the end of the tunnel
  • They are no longer stuck in their homes for the rest of their lives
  • They can sell or refinance their mortgages with a cash out refinance
  • Homeowners with equity can now consider a cash out refinance mortgage
  • They can use the proceeds for a variety of reasons

We will compare the FHA Cash Out Refinance Requirements Versus Other Loan Programs on this BLOG.

What Are FHA Cash Out Refinance Requirements

FHA has different rules and regulations on FHA refinance mortgage loans than other loan programs.

  • FHA allows a rate and term refinance mortgage after six months from the date of the home purchase
  • To do a FHA Cash Out Refinance Mortgage Loan, the homeowner needs to wait one year from the closing of their home purchase
  • The maximum FHA cash out refinance amount is 85% loan to value
  • Borrowers can have a non-occupant co-borrower on a FHA cash out refinance mortgage loan
  • However, the maximum loan to value amount is capped at 75% or less
  • HUD allows FHA Cash Out Refinance on manual underwriting

FHA Streamline Refinance With No Appraisal, No Credit, No Income

Current FHA mortgage borrowers who want to do a FHA refinance but have less than perfect credit and income has greatly reduced with higher debt to income ratios may be eligible for a FHA streamline refinance mortgage loan with no appraisal, no credit, and no income verification.

  • The only requirement for a FHA streamline refinance mortgage loan is homeowners be timely on existing mortgage payments for the past 12 months
  • One 30 day late payment in the past 12 months may be permitted
  • Cannot have been late on mortgage payments in the past 90 days
  • All other derogatory credit and late payments on credit report is overlooked. 
  • Borrowers do need a full time job
  • However, the income on full time employment will not be verified
  • High debt to income ratios are ignored
  • FHA feels that since they originally underwrote and funded FHA loan, they do not need order a second appraisal
  • FHA has an appraisal on file and since they have been paying timely on current FHA loan, why order a new one
  • Homeowner have proven themselves they have been making timely payments and will continue to make timely payments is how FHA looks at it

Conventional Loan Refinance Versus FHA Cash Out Refinance Requirements

To do a conventional refinance mortgage after a home purchase, the homeowner needs to wait six months from the closing date of the home.

  • With conventional loans, a homeowner can do a rate and term refinance or conventional cash out refinance mortgage after six months from the purchase date of the home
  • Maximum loan to value on a cash out refinance mortgage on a conventional loan is 80% loan to value
  • Many homeowners who have purchased their homes in the past few years have their homes appreciate double digits year after year with no signs of slowdown
  • The following states had double digit returns on their home values:
    • Illinois
    • Georgia
    • Indiana
    • Utah
    • Maryland
    • Florida
    • Louisiana
    • Texas
    • Virginia
    • Ohio
    • District of Columbia
    • Minnesota
    • Wisconsin
    • Michigan
    • New Jersey
    • New Mexico
    • Oklahoma
    • California
    • Most homeowners who put 3.5% on FHA Loans or 5% down payment on conforming loans do not realize that their homes have appreciated more than 20% in the past few years
  • Home values have appreciated double digits consistently in the past few years in many parts of the country
  • Many homeowners do not even realize this. 
  • Here is typical case scenario on how homeowners realize they are no longer in the red:
    • Millions of homeowners who had underwater mortgages
    • this is when mortgage balance is higher than the value of home
    • homeowners thought that they were stuck in their home for decades to come
    • They are shocked at how much their homes have appreciated
    • they are no longer hostages in their homes
    • they can now either do a cash out refinance or sell their home
    • they can either down size or buy a larger home
  • Fannie Mae and Freddie Mac are the two government sponsored enterprises, GSE
  • Fannie Mae and Freddie Mac set mortgage guidelines on Conventional Loans
  • Homeowners can do a cash out refinance on a Conventional Loan up to 80% Loan To Value
  • Borrowers can do a rate and term refinance mortgage of 95% Loan To Value
  • Borrowers can refinance their FHA Loan to a Conventional Loan and Vice Versa

VA Cash Out Refinance Versus FHA Cash Out Refinance Requirements

Borrowers who have a VA Certificate of Eligibility can do a 100% Loan To Value cash out refinance on a VA Loan. However, not everyone qualifies for a VA Loan. Borrowers need to be a veteran with a COE in order to qualify for a VA Loan. Gustan Cho Associates Mortgage has no overlays on VA Loans. We are direct lenders with no mortgage overlays on government and conventional loans. To qualify with a lender with zero overlays, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response.

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