FHA Announces Changes to Cash-Out Refinancing Loans
August 24, 2019
The Department of Housing and Urban Development has announced modifications to the FHA Cash-Out Refinance program. On August 1, 2019, the agency issued a press release announcing measures to reduce the risk to its cash out refinance loan program.
“The changes preserve homeowners’ ability to convert home equity to cash via a government-sponsored mortgage but also improves the risk profile of HUD’s housing finance programs” according to the HUD press release.
The HUD changes coincide with modifications made by the Government National Mortgage Association, also known as Ginnie Mae. That agency has made changes to its’ program to reduce the risks the press release states are associated with “loan churning” with VA home loans guaranteed by the Department of Veterans Affairs.
How do the HUD changes directly affect potential borrowers?
The simplest answer is that the HUD modification to the program reduces the loan-to-value ratio for FHA cash-out refinance loan transactions. Prior to the announcement, FHA cash-out refinance loans had a maximum loan-to-value ratio of 85%. That means that if you refinance a home loan, under the previous rules you could refinance 85% of the loan amount.
Under the new rules, the FHA cash-out refinance loan-to-value ratio is lowered to 80%.
One consequence of that lower amount? Borrowers with less equity in their homes at application time will not have as much cash back on the transaction as those who have been paying on their mortgages longer.
In general, the more equity you have in your home, the more you can get from a cash-out refinance transaction, but with a lower LTV of 80%, borrowers will definitely notice a difference in the amount of cash back if they compare how much cash back would be available at the prior 85% LTV.
This is not the first time the FHA has changed the LTV rules for FHA cash-out loans. The HUD announcement recaps some of the 21st century alterations to the program. At one time you could apply for FHA cash-out refinancing with an LTV of 95 percent.
In 2009, the government’s response to the housing crisis included lowering the LTV on FHA cash-out refinance loans down from 95% to 85%.
The revised LTV of 80% for FHA cash out refi transactions will take effect for loans with FHA case numbers assigned on or after September 1, 2019. Borrowers who apply for FHA cash-out refinance loans before that date will have their loans processed with the current LTV of 85%. Ask a loan officer if you don’t understand how the timing of your loan application will affect your ability to get a cash out loan at the current 85%.
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“The changes preserve homeowners’ ability to convert home equity to cash via a government-sponsored mortgage but also improves the risk profile of HUD’s housing finance programs” according to the HUD press release.
The HUD changes coincide with modifications made by the Government National Mortgage Association, also known as Ginnie Mae. That agency has made changes to its’ program to reduce the risks the press release states are associated with “loan churning” with VA home loans guaranteed by the Department of Veterans Affairs.
How do the HUD changes directly affect potential borrowers?
The simplest answer is that the HUD modification to the program reduces the loan-to-value ratio for FHA cash-out refinance loan transactions. Prior to the announcement, FHA cash-out refinance loans had a maximum loan-to-value ratio of 85%. That means that if you refinance a home loan, under the previous rules you could refinance 85% of the loan amount.
Under the new rules, the FHA cash-out refinance loan-to-value ratio is lowered to 80%.
One consequence of that lower amount? Borrowers with less equity in their homes at application time will not have as much cash back on the transaction as those who have been paying on their mortgages longer.
In general, the more equity you have in your home, the more you can get from a cash-out refinance transaction, but with a lower LTV of 80%, borrowers will definitely notice a difference in the amount of cash back if they compare how much cash back would be available at the prior 85% LTV.
This is not the first time the FHA has changed the LTV rules for FHA cash-out loans. The HUD announcement recaps some of the 21st century alterations to the program. At one time you could apply for FHA cash-out refinancing with an LTV of 95 percent.
In 2009, the government’s response to the housing crisis included lowering the LTV on FHA cash-out refinance loans down from 95% to 85%.
The revised LTV of 80% for FHA cash out refi transactions will take effect for loans with FHA case numbers assigned on or after September 1, 2019. Borrowers who apply for FHA cash-out refinance loans before that date will have their loans processed with the current LTV of 85%. Ask a loan officer if you don’t understand how the timing of your loan application will affect your ability to get a cash out loan at the current 85%.
------------------------------
RELATED VIDEOS:
Consider the Benefits and Risks of a Joint Loan
Borrowers Should Know About the Origination Fee
Everyone Needs to Pay Their Property Tax
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