FHA cash out refinance guidelines 2019

FHA mortgage applicationThe Federal Housing Administration (FHA) offers 7 refinance programs. The Rate and/or Term, Simple Refinance, Streamline Credit Qualifying, Streamline Non-Credit Qualifying, Cash-Out Program, Standard Rehab 203(k) & the Limited 203(k).

The FHA Rate and or Term Refinance Program

The Rate and or Term Refinance Program is available to homeowners who wish to refinance their existing mortgage. The Rate/Term Refinance Program is open to homeowners with an existing FHA mortgage and non-FHA mortgage. Second mortgages can be included with the rate/term refinance, provided the unpaid principal balance of any junior liens over 12 months old as of the date of existing mortgage payoff. If the balance or any portion of an equity line of credit in excess of $1,000 was advanced within the past 12 months and was for purposes other than repairs and rehabilitation of the property, that portion above and beyond $1,000 of the line of credit is not eligible for inclusion in the new Mortgage. Settlement costs can be rolled into the rate/term refinance option (i.e. title insurance, transfer tax, recordation and excise taxes). The equity requirement is only 2.5% for the new mortgage. That means after rolling in the 1st, 2nd (if applicable), closing costs and new escrow, the total loan amount can be as high as 97.75% of the appraised value.

The Rate/Term Refinance Program refinance option requires credit, employment, debt to income, and asset qualification. A home appraisal is required. In short, you and your home must qualify.

The FHA Simple Refinance

The FHA Simple Refinance is similar to the Rate/Term refinance program, however, the Simple Refinance program does not allow any 2nd or 3rd mortgages to be included with the new loan amount. The Simple Refinance program does allow the closing costs and escrow requirements to be included in the new loan. The Simple Refinance option requires credit, employment, debt to income, and asset qualification. A home appraisal is required. The existing mortgage must be an FHA mortgage.

The FHA Streamline Refinance

The Streamline Refinance is a very popular refinance choice for credit and/or appraisal challenged borrowers. The FHA Streamline Refinance can be either Non-Credit Qualifying or Credit Qualifying. The existing mortgage must be an FHA mortgage. Second and third liens CANNOT be rolled into the new mortgage. Existing subordinate financing can remain in place, provided, that the subordinated lien(s) are re-subordinated to the Streamline Refinance. Some exceptions are available. There is no maximum combined loan to value (CLTV) with streamline loans. Appraisals are not required for FHA Streamline loans.

1. Streamline Refinance Credit Qualifying Program is required when:

- a change in the mortgage term will result in an increase in the mortgage payment of more than 20%
- when deletion of a borrower or borrowers will trigger the due-on-sale clause
- following the assumption of a mortgage that occurred less than six months previously, and does not contain restrictions (i.e. due-on-sale clause) limiting assumption only to a creditworthy borrower, or
- following the assumption of a mortgage that
occurred less than six months previously, and
did not trigger the transferability restriction (that is, the due-on-sale clause), such as in a property transfer resulting from a divorce decree or by devise or descent. SOURCE: HUD 4155.1 Chapter 6, Section C

2. The Non-Credit Qualifying loan does not require credit, employment, debt to income, and asset qualification. A home appraisal is NOT required! The home must have been owned for at least six months.

The Borrower must have made all Mortgage Payments for all Mortgages on the subject Property within the month due for the six months prior to case number [new loan number] assignment and have no more than one 30-Day late payment for the previous six months for all Mortgages on the subject Property. The Borrower must have made the payments for all Mortgages secured by the subject Property within the month due for the month prior to mortgage Disbursement. SOURCE: FHA Handbook 4000.1 417 Effective Date: 09/14/2015 | Last Revised: 12/30/2016

The Streamline program (credit qualifying and non-credit qualifying) requires the new mortgage to meet the "net tangible benefit" test. This requirement was established by the FHA to make sure that a refinance was actually beneficial to the borrower. The maximum amortization term is limited to the lesser of:
- The remaining amortization period of the existing Mortgage plus 12 years; or
- 30 years

FHA Cash Out Refinance

FHA Cash Out Refinance is used to payoff a first, second and or third mortgage, or to obtain cash at closing.

The maximum loan amount is the lessor of 85% of the appraised value of the home or the FHA lending limit for the county where the home is located. This means that the 1st mortgage, 2nd and other liens (if applicable), the sum of the closing costs, escrow requirements and cash received at settlement cannot exceed 85% of the appraised value, or maximum lending limit, whichever is less.

Only owner-occupied principal residences are only permitted on the cash out refinance loan.
The subject property must have been owned and occupied by the Borrower as the principal residence for the 12 months prior to the date of case number (FHA loan number) assignment. There is an exception in the case of inheritance.

Payment History Requirements for Cash Out Refinance
(a) Standard The Mortgagee must document that the Borrower has made all payments for all their Mortgages within the month due for the previous 12 months or since the Borrower obtained the Mortgages, whichever is less. Additionally, the payments for all Mortgages secured by the subject Property must have been paid within the month due for the month prior to mortgage Disbursement. Properties with Mortgages must have a minimum of six months of Mortgage Payments. Properties owned free and clear may be refinanced as cash-out transactions. SOURCE:  FHA Handbook 4000.1 417 Effective Date: 09/14/2015 | Last Revised: 12/30/2016

203(k) Refinance and Rehabilitation Program

Did you know that you can payoff your existing mortgage and subordinate liens (if applicable), roll in the closing costs and escrow amounts and include "extra" money for home improvements? The 203(k) loan program does just that. There are two refinance options.

1. The Standard 203(k) Mortgage may be used for repairs and/or remodeling. There is a minimum repair cost of $5,000 and the use of a 203(k) Consultant is required.

2. The Limited 203(k) option may only be used for non-structural repairs and/or minor remodeling. The Limited 203(k) does not require the use of a 203(k) Consultant, but a Consultant may be used. The total rehabilitation cost must not exceed $35,000. There is no minimum rehabilitation cost.

Limited 203(k) Eligible Improvements
(1) Types of Improvements
Eligible improvement types include, but are not limited to:

connecting to public water and sewage systems;
creating accessibility for persons with disabilities;
eliminating health and safety hazards that would violate HUD's MPR;
eliminating obsolescence;
installing a new refrigerator, cooktop, oven, dishwasher, built-in microwave oven and washer/dryer;
installing or repairing fences, walkways, and driveways;
installing smoke detectors;
installing, replacing or repairing exterior decks, patios, and porches; and
covering lead-based paint stabilization costs (above and beyond what is paid for by HUD when it sells REO properties) if the Structure was built before 1978, in accordance with the Single Family mortgage insurance lead-based paint rule and EPA’s Renovation, Repair, and Painting Rule.
making changes for improved functions and modernization;
making energy conservation improvements;
repairing or installing new roofing, provided the structural integrity of the Structure will not be impacted by the work being performed; siding; gutters; and downspouts;
repairing or removing an in-ground swimming pool;
repairing or replacing wells and/or septic systems;
repairing/replacing plumbing, heating, AC and electrical systems;