A cash out refinance allows homeowners to refinance their existing mortgage by taking out another mortgage for more than they currently owe. The instability of financial markets, however, has tightened credit and made cash out refinancing more difficult to obtain.
THE GOOD NEWS
In order to qualify for a cash out refinancing, most lenders limit the loan to value ratio to 80%; that is, the amount of the loan must be no more than 80% of the value of the home. There is good news, however. Homeowners can still qualify for an FHA insured cash out refinancing with a loan to value ratio of up to 95%.
THE BAD NEWS
New FHA guidelines require borrowers obtaining an FHA cash out refinancing with a loan to value ratio of over 85% to get two appraisals on the property, which makes the loan more expensive than before. The second must be done by an FHA approved appraiser hired by the lender and the costs may be passed on to the borrower. If the second appraisal comes in more than 5% below the 1st, the maximum mortgage must be based on the lower appraised value.
Other guidelines include the following:
* The borrower must have owned the property as his or her principal residence for at least 12 months prior to completing the loan application.
* The owner must be current on the mortgage with no late payments for at least one year.
* The property being refinanced must be a 1 or 2 unit dwelling.
* If another mortgage or lien exists on the property, it must be subordinate to the new FHA mortgage.
*Any co-borrower must be an occupant of the property. Non-occupant owners may not be added
* The mortgage to be refinanced must already be FHA insured.