Refinance - Cash Out

•	Loan amounts > $417,000: 85% LTV maximum.

•	Loan amounts ≤ $417,000:

o	If owned < 12 months: 85% LTV, determined by using the lesser of the Appraised Value or the original sales price.

o	If owned ≥ 12 months: up to 95% LTV or current appraised value, subject to all of the following:

▪	Property is the borrower’s principal residence for at least 12 mo. prior to application date.

▪	No payment may be more than 30 days late within the last 12 months and payment must be current for the month due. Borrowers whose loans are delinquent or in arrears are not eligible.

▪	1-2 unit only. Max. loan amount = $417,000 for 2 units.

•	Property must be owned minimum of 6 months (Title in borrower's name).

•	Existing subordinate financing: may remain in place (regardless of CLTV) if the borrower qualifies with payments on all liens.

•	New secondary financing: Not allowed on loans with LTVs > 85%.

•	Non-Occupant Co-Borrowers / Co-Signers may not be added to the loan to meet credit underwriting guidelines.

•	Properties owned free and clear may be financed as cash-out transactions.

EFFECTIVE WITH ALL LOCKS MARCH 25, 2009 AND THEREAFTER:

The Loan-To-Value (LTV) of any cash-out refinance to be insured by FHA may not exceed 85% of the

appraiser's estimate of value.

Underwriting and eligibility requirements for cash-out refinances include:

Subordinate Liens and Combined Loan-to-Value (CLTV):

New Subordinate Financing: If new subordinate financing is being offered by the mortgagee or other permitted entity, the CLTV is limited to 85 percent (the FHA-insured first mortgage and any new junior liens when added together).

Re-Subordinate: Existing subordinate financing may remain in place, but subordinate to the FHA-insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the borrower qualifies for making scheduled payments on all liens.

Modified Subordinate Lien: FHA understands that many subordinate lien holders have been requesting modifications to the terms of the lien (typically a reduction in the amount of the lien) in exchange for remaining in a subordinate position. Modifying the subordinate lien in this manner often results in re-executing it at closing, which is an acceptable practice to FHA and therefore, FHA does not consider it a new subordinate lien.

Length of Ownership:

12 Months or More: The subject property must have been owned by the borrower as his or her principal residence for at least 12 months preceding the date of the loan application in order to obtain the maximum of 85 percent of the appraiser’s estimate of value in the new mortgage. This applies whether there was a mortgage, and thus, mortgage payments, on the property, i.e., ownership of at least 12 months regardless of the number of mortgage payments, if any, that may have come due.

Less than 12 Months: If the subject property has been owned less than 12 months preceding the date of the loan application as the borrower’s principal residence, the mortgage amount is limited to the lesser of either 85 percent of the appraiser’s estimate of value or 85 percent of the sales price of the property when acquired. However, a sales price need not be considered if the property was acquired as the result of inheritance and is or will become the heir’s principal residence.

Delinquent Borrowers Ineligible: Borrowers who are delinquent or in arrears under the terms and condition of their mortgage are not eligible for a cash-out refinance.

Three-and Four Unit Properties: The “self-sufficiency” test for three- and-four unit properties remains in effect. Handbook HUD-4155.1 REV-5, paragraph 1-8C explains the additional requirements for these properties.

Second Appraisal Requirements for High-Balance Cash-Out Refinances: A second appraisal is required on cash-out refinances that will exceed $417,000 and the property is in a declining area. See Mortgagee Letter 2008-09 for more information.

Non-Occupant Co-Borrowers/Co-Signers: Any co-borrower or co-signer being added to the note must be an occupant of the property securing the new FHA-insured mortgage. Non-occupant co-borrowers or co-signers may not be added in order to meet FHA’s credit underwriting guidelines for the cash-out refinance.