HUD Cash-Out Guidelines Changing To 80% LTV On FHA Loans
This ARTICLE On HUD Cash-Out Guidelines Changing To 80% LTV On FHA Loans Was PUBLISHED On August 25th, 2019
The United States Department of Housing And Urban Development (HUD) is the parent of FHA. FHA is not a lender.
- The Federal Housing Administration is a government agency
- The role of FHA is to insure and partially guarantee lenders in the event if a borrower defaults and forecloses on their FHA loans
- Due to this government guarantee, private lenders can offer lower down payment options to homebuyers with less than perfect credit scores at low mortgage rates
- FHA loans are one of the most popular mortgage programs in the United States
- FHA loans are for purchase and refinance
- Starting September 1, 2019, HUD Cash-Out Guidelines will be limited to 80% LTV.
- HUD Cash-Out Guidelines on loan to value will get lowered to 80% LTV from the current 85% loan to value
In this article, we will cover and discuss HUD Cash-Out Guidelines on FHA Refinances.
Reason For HUD Cash-Out Guidelines Changes
Due to the 85% LTV HUD Cash-Out Guidelines, many homeowners enjoyed doing cash-out refinances on FHA Loans with the recent surge of home values in recent years.
- Home values have been escalating for the past three years with no signs of correction
- HUD got wind of this and got scared due to the mass FHA cash-out refinance numbers
- Both HUD and FHFA increased FHA and Conventional Loan Limits for the past 3-years due to rising home prices
- 2019 FHA Loan Limit is capped at $314,827
- 2019 Conforming Loan Limit is capped at $314,827
- Home Appraisal Values have substantially increased from the 2008 Real Estate Market Crash to the present
- Many homeowners have substantial equity in their homes due to the sudden rise in home prices
According to U.S. HUD Secretary Ben Carson:
An increase in cash-outs poses a potential future risk for us but also challenges the core tenants of FHA’s taxpayer-backed mission. To say the least, we feel that the level of cash-out refinancing is getting risky. Thus, the drop from 85% to 80%. Many have forgotten that in 2009, FHA had reduced the cash out limits from 95% to 85%. Even though FHA is reducing the cash-out limit to 80%, it is not taking away the FHA MIP requirement!
Does The New HUD Cash-Out Guidelines Require FHA MIP?
With conventional loans, private mortgage insurance (PMI) is not required on loan to values at 80% LTV or lower.
- Do the new HUD Cash-Out Guidelines require FHA mortgage insurance premium if the LTV is 80% or less?
- All FHA mortgages mandate a one time upfront FHA MIP of 1.75% and an annual FHA MIP of 0.85%
- FHA MIP is mandatory on all 30-year fixed-rate FHA Loans
- If borrowers are borrowing with 10% down payment and/or 90% LTV, FHA MIP can be canceled in 11 years
- Over 90% LTV, then the FHA MIP is required for the life of the 30-year FHA loan term
- The 80% LTV is for cash-out refinances only
Borrowers can have higher loan to values on FHA Streamlines, rate and term loans, and FHA purchase loans.
HUD Cash-Out Guidelines Versus Other Loan Programs
HUD Cash-Out Guidelines is now capped at 80% LTV starting September 1st, 2019.
- The Department of Veterans Affairs (The VA) recently followed HUD’s lowering on FHA cash-out mortgages and lowered VA cash-out LTV to 90% from the previous 100 LTV cash-out guidelines
- Fannie Mae and Freddie Mac limit loan to value up to 80% on owner-occupant primary residence conventional loans
- Cash-out refinance guidelines on conventional loans on two-unit properties is capped at 75% LTV. Second homes are capped at 75% LTV
- Rental properties on cash-out conventional loans are 75%
- Two-unit rental cash-out refinances are capped at 70% LTV
Private mortgage insurance is not required on conventional loans if the loan to value is at least 80% LTV.
For more information about the contents of this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org.