FHA Cash Out Refinances

Cash-out refinances on properties owned more than one year prior to the refinance are permitted on owner occupied principal residences only, and are limited to 85% of the appraised value plus the allowable closing costs.

A cash-out refinance is when a borrower refinances their current mortgage for more than they owe in order to pull out the built up equity that has accrued in the home. The amount a home owner can borrower is limited by the value of the property compared to the loan amount (otherwise known as the loan-to-value or LTV). 

The following are basic requirements of a cash-out FHA refinance:

• If the property was purchased less than one year preceding the refinance, the borrower is allowed to refinance up to 85% of the original sales price plus the allowable new closing costs or the appraised value plus the allowable closing costs (whichever is lesser)

• If the property was purchased more than one year preceding the refinance, the borrower can cash-out 85% of the the appraised value plus the allowable closing costs

• Applies to owner occupied properties only

• 2nd mortgages may be paid off with the cash-out refinance (the second mortgage must be at least 12 months old)

• Loan amounts may not exceed the maximum loan limits for the area

• If the new loan is to refinance an existing mortgage to buy out an ex-spouse's equity, a divorce decree or settlement agreement must be provided to document the equity awarded to the ex-spouse

• All borrowers must credit qualify

• Borrowers may be eligible for a refund of any unused portion of the mortgage insurance premium (MIP) and the new mortgage may require a new upfront MIP.