All FHA cash-out refinancing with case numbers assigned after April 1, 2009 will have the loan-to-value or LTV limited to 85% of the appraised value of the home. That eliminates the 95% LTV cash out refinancing loans guaranteed by the FHA previously.

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Changes to FHA Cash-Out Refinancing

While economic news fluctuates back and forth between good and bad news, HUD and the FHA aren’t taking any chances with the current housing market. According to a recent memo from the Department of Housing and Urban Development, the FHA is changing the rules for FHA cash-out refinancing due in part to “…the continued deterioration in the housing market, and FHA’s need to limit its exposure to undue risk”.

All FHA cash-out refinancing with case numbers assigned after April 1, 2009 will have the loan-to-value or LTV limited to 85% of the appraised value of the home. That eliminates the 95% LTV cash out refinancing loans guaranteed by the FHA previously.

Some lenders urged people to apply for 95% FHA cash out refinancing loans before the 1 April deadline, but under the new rules, if your case number was assigned on or after 1 April 2009, the 85% LTV limit applies regardless of when your paperwork was submitted.

For those considering a rush application before April 1st, it’s important to know that the “12 month” rule applies for the “old” and “new” FHA cash-out refinancing LTV limits. Owners cannot be approved for the full LTV on FHA refinance loans unless they have owned the property for at least 12 months.

Those applying for FHA cash-out refinance loans who apply before 12 months have passed are eligible for either 85% of the appraised value or 85% of the sale price of the home when it was originally purchased—whichever amount is lowest. If you haven’t owned your home for 12 months or more, it does no good to rush an FHA cash-out refinancing loan—you will still be limited to a maximum 85% of the LTV on the home, regardless. Those who have met the 12 month requirement and want to apply prior to April 1st may do so, but there are no guarantees an FHA case number will be assigned before the April cutoff date.

The good news for those seeking 95% cash-out refinancing? According to Assistant Secretary for Housing Brian D. Montgomery, the 85% limit could be a temporary measure. “This reduction to the maximum LTV for cash-out refinances is being instituted on a temporary basis…” Montgomery wrote in a Mortgagee Letter from March 12, 2009, “While FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken.“