The Federal Housing Authority recently announced that cash-out refinancing will now require a second appraisal for loans with a Loan To Value of approximately 85%. The good news is that 95% LTV is currently still in existance. A 95% LTV is defined as having been granted at least 12 months before a cash-out refinance, with the last 12 payments made during the month in which they were due. An 85% LTV is defined as having been granted less than 12 months prior to a cash-out refinance. The following characteristics define the 95% LTV: the first mortgage is not greater than $417,000, it has a standard cash-out maximum mortgage calculation up to 95%, the current appraised value is utilized when determining the loan amount and there are no loan seasoning time limits for subordinate liens.
Unfortunately, some borrowers with 85% LTVs will be required to have a second appraisal. They will likely be forced to finance the second appraisal, which will add to their other closing costs. A second appraisal will be required when the all of the following criteria is met: the property is located in an area that is considered to be a declining market, the amount of the loan (minus the upfront mortgage insurance premium) is greater than $417,000 and the LTV (minus the upfront mortgage insurance premium) is equal to or exceeds 95%.
This new second appraisal requirement might prove to be a step in the right direction towards rescuing declining housing markets. Though the change was not particulary welcome by many consumers, it may actually turn out to have positive results in the long run. Thankfully, the FHA is not currently setting higher requirements for downpayments or borrower credit bureau scores. If they make the decision to enact stricter standards in the future, it could cause even more headaches for potential homeowners.