Written By: Bonnie Wilt-Hild, Op-Ed Writer
I have recently had some questions regarding maximum Loan to Value guidelines where FHA cash out refinances are concerned. It seems that most people believe that 95% is the rule regardless of the loan parameters so I thought today would be a good day to set the record straight. I would also like to mention that all should take these current guidelines in stride as the current rumor is that FHA plans to again reduce the maximum LTV on all cash out refinances to 85% which was the limit until 2005.
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Under most circumstances a borrower can go to a 95% LTV where cash out refinances are concerned however there are some exceptions to this rule, and in these cases the maximum Loan to Value is limited to 85%. The following are the exceptions to the 95% rule and as stated, if your application falls into these parameters, then your base loan amount will be limited to an 85% LTV under HUD guidelines.
1. If the borrower has owned the subject property for less than one year, then the LTV may not exceed 85% and you must use the original contract sales price or appraised value must be used.
2. If there will be a non owner occupant co borrower on the loan application, then the maximum LTV will be 85% for cash out refinance transactions.
3. If the borrower has made any late mortgage payments on their present mortgage within the most recent 12 months, then the LTV will be limited to 85% regardless of total scorecard findings.
4. If the borrowers base loan amount will be greater than $417,000, then the maximum LTV for the case will be 85%.
5. If the subject property has greater than 2 living units, then the maximum LTV is limited to 85%.
Other than the above circumstances, you are still presently allowed to lend to a
Maximum LTV of 95% on cash out refinance transactions which guidelines were set forth in Mortgagee Letter 2005-43 until further notice.
I would also like to mention a few things on rate/term refinances while we are on the subject. Firstly, remember that on full credit qualifying refinances, skipped payments are not allowed, so when reviewing the payoff statement be sure to make sure that the mortgage has been paid for the month due, otherwise you will need to verify sufficient funds to pay it and have the borrower bring the funds to the settlement table.
Lastly, remember to run the rate/term refinances through Total Scorecard as no cash out refinances and be sure that the borrower receives no more then $500.00 in loan proceeds at time of closing, any more then this must be applied back to the principal balance. As always, happy underwriting.
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie holds mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".
