HUD Cash-Out Refinance LTV Guidelines On FHA Loans

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This ARTICLE On HUD Cash-Out Refinance LTV Guidelines On FHA Loans Was PUBLISHED On September 13th, 2020

HUD Cash-Out Refinance LTV Guidelines
Gustan Cho Associates

Once again, we have some breaking news to tell our readers.

  • As of August 1, 2019, the U.S. Department of Housing and Urban Development has announced a change in maximum loan-to-value (LTV) and combined loan-to-value (CLTV) percentages for cash-out refinance mortgages
  • This rule only applies to FHA mortgages
  • The purpose of this change is to lower the maximum loan-to-value and combined loan-to-value percentages to 80% from 85% on all cash-out refinance mortgages
  • In this blog, we will detail the HUD Cash-Out Refinance LTV Guidelines and reasons for the loan-to-value change when this change will go into effect

In this article, we will discuss and cover the HUD Cash-Out Refinance LTV Guidelines.

What Sparked Cash-Out Refinance LTV Guidelines

The Federal Housing Administration or FHA last adjusted the maximum loan-to-value on cash-out refinance is from 95% down to 85% in 2009.

  • This was in response to the falling housing market caused by the real estate crash in the late 2000s
  • Back in the mid-2000s. housing values were steadily increasing year after year
  • This created an influx in cash-out refinance transactions
  • Data studied after the fact shows a significant increase in the foreclosure rate which is directly tied to the high number of cash-out refinances
  • A trend showed the default rate was high for homes that had cash-out refinances recorded on the property’s title
  • This trend has been studied ever since the crash

As a precaution, government-sponsored enterprises have instituted this loan-to-value change to curb the risks of future defaults.

Change Of Cash-Out Refinance Guidelines Due To Large Number Of Cash-Out Refinances

Another reason for this change is, HUD’s data showing a large increase in the volume of cash-out refinance transactions.

  • They state the total number of FHA cash-out refinance mortgages has increased 250.47% from 43,052 in the fiscal year 2013 to 150,833 in the fiscal year 2018
  • 2013 had record-breaking lows for the volume of FHA cash-out transactions
  • The main reason for moving the max loan-to-value requirement to 80% is to protect American families in case of default
  • This is a measure to strengthen the equity position and reduce the catastrophic loss families face when going through a default
  • HUD’s goal is to stay ahead of any potential future shift in the housing market and better support their overall mission
  • The FHA was created to offer sustainable homeownership and helping Americans build equity, not stripped equity out of their property

The Federal Housing Administration is a firm believer in the American dream.

When Does HUD Cash-Out Refinance Guidelines Go Into Effect?

The changes will go into effect for all FHA case number is assigned on or after September 1, 2019. By that time, all policy updates will be incorporated into the HUD 4001.1 HANDBOOK. This will be added to Section II.A.8.d.v(B)(1).

See below;

When does this new rule go into effect?

85% LTV Cash-Out Refinance On FHA Loans No Longer In Place

Still, Time Left To Do 85% LTV Cash-Out Refinance On FHA Loans

If you are in need of an 85% loan-to-value FHA cash-out refinance, it is no longer in place. However, GCA Mortgage Group can get you up to a 80% cash-out refinance on FHA Loans. Please contact Gustan Cho Associates. Call Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or send us an email at gcho@gustancho.com.

  • We will have to see how this plays out. Housing and Urban Development are open to feedback from interested parties until October 1, 2019
  • HUD will take this feedback into account when determining future options for FHA cash-out refinances and mortgages in general
  • Interested parties may say the end of their feedback to answers@hud.gov

Our mission at Gustan Cho Associates is to educate our clients on all mortgage guideline changes. The mortgage market and mortgage guidelines are constantly changing. Many loan officers do not take the time to say up to date on these changes. Part of the reason there is so many horror stories of clients getting denied for a mortgage. 75% of our clients have been turned down by their current lender or not getting the customer service they deserve. We are available seven days a week or any mortgage questions.

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