FHA Loan Articles
FHA Cash-Out Refinancing Changes as of April 2009
Under the previous policy, homeowners could apply for FHA guaranteed cash out refinancing for as much as 95% of the loan-to-value amount. Starting with all FHA loans with case numbers issued after 1 April 2009, the limit is set at 85%. The reason for the change in policy? FHA cash-out refinancing loans are being limited because of ".the continued deterioration in the housing market, and FHA's need to limit its exposure to undue risk". That's the bad news, according to Assistant Secretary for Housing Brian D. Montgomery, who also provides a bit of good news--the move could be only temporary.
"This reduction to the maximum LTV for cash-out refinances is being instituted on a temporary basis." Montgomery said, "While FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken."
Some might be tempted to apply for 95% FHA cash out refinancing loans before the 1 April deadline, but under the new rules, if your case number was assigned on or after 1 April 2009, the 85% LTV limit applies regardless of when your paperwork was submitted.
For those considering a rush application before April 1st, the "12 month" rule applies for both the old and new FHA cash-out refinancing LTV limits policies. Borrowers do not qualify for the full LTV amount on FHA refinance loans unless they have owned the property for at least 12 months. Borrowers applying before 12 months have passed are still eligible for either 85% of the appraised value or 85% of the sale price of the home when it was originally purchased-whichever amount is lowest.
If you haven't owned your home for 12 months or more, rushing into the paperwork for an FHA cash-out refinancing loan doesn't get you into a higher amount of cash out refinancing money. You are limited to a maximum 85% of the LTV on the home, regardless. If you have owned the home for a full 12 months you may apply before April 1st, but there are no guarantees an FHA case number will be assigned before the April cutoff date. All case numbers issued after 1 April 2009 are affected by the new policy.