Rate And Term Refinance Mortgage Loans

May be used to pay off an existing FHA, VA or Conventional first lien.

1-4 unit Primary Residence only.

Full appraisal required.

Borrower may not receive more than $500 cash back at closing.

Payoff statement is required.

Maximum LTV/CLTV For Rate And Term Refinance

The maximum mortgage amount is the lesser of:

1.   97.75% of the appraised value (or acquisition cost as applicable), or

2.  The sum of the outstanding balance of the first lien up to two months of pro rate MIP if paying off an FHA mortgage, closing costs and prepaids, borrower paid discount points, purchase money seconds, non-purchase money second liens ONLY IF at least 12 payments have been made (see Subordinate Financing topic below), prepayment penalties, accrued late charges, escrow shortages, borrower paid repairs required by the appraisal, minus any refund of UFMIP. Prepaid expenses are limited to per diem interest and hazard/flood property taxes and mortgage insurance impound).

Loan To Value And Refinance

If the loan being paid off is NOT an FHA loan and the borrowers have owned and occupied the property less than one year prior to application date, the LTV is based on the lesser of the current appraised value or original acquisition cost (sales price plus any documented costs to repair, rehabilitate, renovate or weatherize the property plus closing costs including reasonable discount points) or total of all mortgage liens held against the property. Use current appraised value for all other scenarios.

Refinance Programs

The existing mortgage outstanding balance may include up to 60 days of interest as follows

1.  30 days interest for the month preceding the month of closing, and

2.  Up to 30 days interest for the month of closing.

 Delinquent Interest

Delinquent interest, late charges, or escrow shortages may not be included in the outstanding principal balance of the mortgage being paid off for the maximum mortgage calculation.

Occupancy Of Former Investment Property Rate And Term Refinance

The following guidelines apply when a borrower is re-occupying a property formerly used as an investment property:

1.   If re-occupied as a Primary Residence for 12 months or more prior to the initial loan application date: Maximum financing allowed.

2.  If re-occupied for less than 12 months prior to the initial loan application date: Allowed as a Rate/Term Refinance only, but LTV/CLTV is limited to 85%.

Secondary Financing

Subordinate liens (including credit lines), regardless of seasoning, may remain outstanding provided the combined liens do not exceed 97.75%.

If disbursements from an equity line exceed a total of $1,000 within the past 12 month and the funds were NOT used for repair and rehabilitation of the subject property, the line of credit cannot be included in the new mortgage. 

Non-purchase money second liens must be seasoned 12 months (12 payments made) in order to be included in the loan amount.

The maximum credit limit on a HELOC is used to calculate the CLTV.

Spouse Or Co-Borrower Buy Out Rate And Term Refinance Mortgage Loans

The amount of the buyout is considered property related indebtedness and can be included in the new loan.

Buyout amount must be documented in a recorded property settlement agreement or divorce decree.

If the borrower is newly separated and no property settlement agreement has been prepared, a legally recorded document prepared by an attorney specifically outlining the division of equity is acceptable to HUD.

Short Refi / FHA Refinance Of Borrowers In Negative Equity Positions

The borrower must be current on the existing mortgage to be refinanced.

All borrower(s) must occupy the subject property (1-4 units) as their primary residence.

The borrower(s) must qualify for the new loan under standard FHA underwriting requirements.

The existing loan being refinanced may not be an FHA loan and the existing lien holder must write off at least 10% of the original first lien mortgage unpaid principal balance.

Existing subordinated mortgages must be re-subordinated and the new loan may not have a CLTV greater than 115%. At the discretion of the first lien holder, the new FHA mortgage to include the refinanced unpaid principal balance on the first lien after the required reduction of at least 10%, amounts used to pay down or pay off any existing second lien debt, plus the interest charged by the servicing lender, provided the new principal balance has a loan-to-value (LTV) no greater than 97.75% and combined LTV no greater than 115%.

For rate and term refinance mortgage loans that receive a Refer recommendation and/or are manually underwritten, maximum ratios are 35% / 48%.

Gustan Cho NMLS ID # 873293

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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