1. No Cash Out Refinance Transactions With an Appraisal

Introduction

This topic contains information on no cash out refinance transactions with an appraisal, including

•	the maximum mortgage calculation

•	calculating the existing debt

•	subordinate liens

•	refinancing to buy out ex-spouse or coborrower equity, and

•	the mortgage calculation for a property acquired less than one year before the loan application.

Change Date

May 10, 2009

4155.1 3.B.1.a Maximum Mortgage Calculation

The maximum mortgage for a no cash out refinancing with an appraisal (credit qualifying) is the lesser of

•	the appropriate LTV ratio applied to appraised value of the property, or

•	the existing debt.

Most FHA mortgages require payment of an UFMIP. The statutory loan amounts and LTV limits described in this handbook do not include the UFMIP.

Additionally, the maximum mortgage may never exceed the statutory limit, except by the amount of any new UFMIP.

Note: The borrower must comply with any appraisal requirements, including repairs, before the mortgage is eligible for insurance endorsement.

References: For more information on

•	maximum LTV ratios, see HUD 4155.1 2.A.2.b, and

•	maximum LTV & CLTV ratios for FHASecure, FHA 95% cash out refinances, and FHA to FHA refinances, see HUD 4155.1 6.E.4.b.

4155.1 3.B.1.b Calculating the Existing Debt

Follow the steps in the table below to calculate the existing debt.

Step	Action
1	Determine the amount of the existing first mortgage. The existing first mortgage must be current for the month due and
	•	may include
		–	the interest charged by the servicing lender when the payoff will not likely be received on the first day of the month (as is typically assessed on FHA-insured mortgages), and
		–	any prepayment penalties assessed on a conventional mortgage or FHA Title I loan
		–	late charges, and
		–	escrow shortages, and
	•	may not include delinquent interest.
2	Determine the prepaid expenses, which may include
	•	the per diem interest to the end of the month on the new loan
	•	hazard insurance premium deposits
	•	mortgage insurance premiums, and
	•	any real estate tax deposits needed to establish the escrow account.
3	Add the following to the existing first mortgage amount:
	•	any purchase money second mortgage
	•	any junior liens over 12 months old
	•	closing costs
	•	prepaid expenses (even if the mortgagee refinancing the loan is the servicing lender)
	•	borrower paid repairs required by the appraisal
	•	discount points, and
	•	other fees determined acceptable by the appropriate HOC.
	Note: If the balance or any portion of an equity line of credit in excess of $1000 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.
4	Subtract any refund of UFMIP. Result: The resulting figure is the existing debt.

4155.1 3.B.1.c Subordinate Liens

Subordinate liens, including lines of credit, regardless of when taken, may remain outstanding, provided the FHA-insured mortgage meets the eligibility criteria for mortgages with secondary financing outlined in HUD 4155.1 5.C.

4155.1 3.B.1.d Refinancing to Buy Out Ex- Spouse or Coborrower Equity

When the purpose of the new loan is to refinance an existing mortgage in order to buy out an ex-spouse's or other coborrower's equity, the specified equity to be paid is

•	considered property-related indebtedness, and

•	eligible to be included in the new mortgage calculation.

The divorce decree, settlement agreement, or other bona fide equity agreement must be provided to document the equity awarded to the ex-spouse or coborrower.

4155.1 3.B.1.e Mortgage Calculation for a Property Acquired Less Than One Year Before Loan Application

If the property was acquired less than one year before the loan application, and is not already FHA-insured, in addition to the calculations described previously in this topic, the original sales price of the property must also be considered in determining the maximum mortgage.

Using conclusive documentation, expenditures for repairs and rehabilitation incurred after the purchase of the property may be added to the original sales price in calculating the mortgage amount.