Chapter
2
Mortgage Credit Guidelines
Page 2-19
A
refinance transaction involves paying off an existing real estate
debt from the proceeds of a new mortgage. The lender must provide
a payoff statement in the case binder. For all refinance loan transactions,
the borrower will not be required to make or bring the current months
payment due to closing, nor will be the principal balance of the
existing loan be reduced by the amount of that unpaid principal.
Under the terms and conditions outlined below, FHA will insure the
following types of refinances:
A. Regular Refinances = “cash-out” and “no cash-out”:
1.“Cash-Out” Refinances - Effective for mortgages endorsed
on or after October 31, 2005, FHA offers a two-tier cash-out refinance
program and in computing maximum allowable mortgage amounts the
following must be applied:
a. 95%
Loan-To-Value:
1)
The loan is limited to 95% of the appraised value.
2) The property that is security for the refinanced mortgage
must be a 1- or 2-unit dwelling.
3) The borrower as his or her principal residence must
have owned the subject property for at least 12 months preceding
the date of the loan application.
4) If the property is encumbered by a mortgage, the borrower
must have made all of his/her mortgage payments within the month
due for the previous 12 months, i.e., no payment may have been
more than 30 days late and is current for the month due.
5) 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 homeowner qualifies
for making scheduled payments on all liens.
6) Any co-borrower or co-signer being added to the note
must be an occupant of the property.
7) If the loan is scored through FHA
TOTAL Scorecard and received an “Accept/Approve” recommendation,
but there are one or more 30-day late payments on the first
mortgage in the past 12 months, then the loan is not eligible
for 95% LTV cash out.
b.
85% Loan-To-Value:
1)
The loan is limited to a combined LTV (FHA insured first mortgage
and any subordinated lien) of 85% of the appraised value provided
the borrower has owned the property for at least one year.
2) The property that is security for the refinanced mortgage
may be a 1-4 unit property.
3) Property must be owner-occupied.
i)
If the property was purchased less than one year preceding
the final application, the mortgage amount must be calculated
using the lesser of the appraised value or the original sales
price of the property multiplied by 85%.
4)
Properties that are owned free and clear may be refinanced
as cash-out transactions.
5) Properties acquired by inheritances within the past
12 months are eligible for a cash-out refinance transaction
limited to 85% of the appraised value. The lender must document
the acquisition by the borrowers via inheritance.
2. “No Cash-Out” Refinances (non-streamlined): The maximum
mortgage is based on the lesser of the two calculations below:
a.
“Maximum loan-to-value percentages” multiplied by the appraised
value, exclusive of closing costs. (Please refer to HUD Handbook:
4155.1
Paragraph 1-11A chart)
b. Sum of existing first lien, any purchase money second
mortgage and/or any junior liens over twelve (12) months old,
closing costs, prepaid expenses, accrued late charges, escrow
shortages, borrower paid repairs required by the appraisal, discount
points, and other fees as determined by the appropriate HUD Homeownership
Center (HOC), subtract
any refund of up-front MIP. The prepaid expenses may include per
diem interest to the end of the month on the new loan, hazard/flood
insurance premiums, mortgage insurance premiums and property tax
deposits needed to establish the escrow account. The existing
first lien may include the interest charged by the servicing lender,
when the payoff is not received by the first of the month, but
may not include any delinquent interest.
B. Streamline Refinances = with or without an appraisal Streamline
transactions involve the refinance of the FHA insured first mortgage
only. This type of loan is designed to lower the monthly principal
and interest payments on the current FHA insured mortgage and involves
no cash back to the borrower, except for minor adjustments at closing
not to exceed $500.
The Limited Denial of Participation
(LDP) and General
Services Administration Debarment (GSA) lists are required to
be checked, however there is no need to check the Credit Alert Interactive
Voice Response System (CAIVRS).
FHA does not require repairs to be completed (except for lead-based
paint) on streamline refinance transactions, however the lender
may require the repairs to be completed; if so, they must be an
out of pocket expense to the borrower.
1. Streamline Refinance with an Appraisal: The maximum insurable
mortgage is the lower of the two calculations below:
a.
“Maximum loan-to-value percentages” multiplied by the appraised
value, exclusive of closing costs.
b. Sum of the existing FHA insured first lien, closing
costs, accrued late charges, escrow shortages, reasonable discount
points and the pre-paid expenses necessary to establish the escrow
account minus any refund of up-front MIP. The existing first lien
may include the interest charged by the servicing lender, when
the payoff is not received by the first of the month, but may
not include any delinquent interest.
2. Streamline Refinance without an Appraisal: The
maximum insurable mortgage is the lower of the two calculations
below:
a.
Original Loan Amount: The original principal balance of the
existing FHA insured mortgage, including any upfront MIP, plus
the new UFMIP being charged on the refinance.
b. Existing Debt: The sum of the existing FHA insured first
lien, closing costs, accrued late charges, escrow shortages reasonable
discount points and the prepaid expenses necessary to establish
the escrow account minus any refund of UFMIP plus the new up-front
MIP. The existing first lien may include the interest charged
by the servicing lender when the payoff is not received by the
first of the month but may not include delinquent interest.
The above mortgage calculation applies only to owner-occupied properties.
Investment properties, even if originally acquired as principal
residence by the current borrowers, may only be streamline refinanced
(FHA to FHA) without an appraisal for the outstanding principal
balance. The term of the mortgage is the lesser of 30 years or the
remaining term of the mortgage plus 12 years.
References: Please see HUD Handbook: 4155.1
Paragraphs 1-11A, 12A, 12B and Mortgage Letters 2005-43
and 2004-44, 2004-28.
Any of the forms cited above can be obtained at the
HUDclips
forms
webpage.
|