FHA Cash-Out Refinance Guidelines and Mortgage Rates

In this article, we will discuss and cover FHA cash-out refinance mortgage guidelines on FHA loans. Home prices have been appreciating since 2011 with no signs of correction. It seems like the real estate market is going strong. Housing demand for housing throughout the United States has been consistently strong.

Alarming High Prices of Homes

Alarming High Prices of Homes

The Federal Housing Finance Agency (FHFA) has increased conforming loan limits for the past six consecutive years in a row. HUD, the parent of FHA, has followed FHFA lead and increased FHA loan limits for six years in a row as well. The reason for FHA and conforming loan limits increase is due to the rapidly rising housing values throughout the United States. In this article, we will discuss and cover FHA cash-out refinance requirements versus other loan programs.

Housing Market Recovery After The 2008 Financial Crisis

The real estate meltdown of 2008 has crushed home values where some homes have dropped 50% in value in some areas of the country. Millions of homeowners were stripped of their hard-earned equity in their homes. Others could no longer afford their homes due to having mortgage loans that were substantially higher than the value of their homes. Countless homeowners had and still have sub-prime mortgage loans with teaser rates. Teaser rates are home loans with a low negative amortizing mortgage rate. After the initial fixed-rate negative amortization period, the new adjusted payment doubled or tripled than their starter interest rate.

Buying Home After The 2008 Housing Meltdown

With the real estate meltdown and credit and financial collapse, many home buyers during the real estate meltdown had the opportunity to purchase a home at rock bottom prices. Homebuyers who purchased their homes in 2009, 2010, 2011, 2012, and 2013 have seen their home values rebound from the real estate market collapse. They can now think about refinancing their current home loans. Some can even do a cash-out refinance loan. Home values have been increasing double digits in many parts of the country.

The Bullish Housing Market Approaching a 10-Year Bull Run

Many homeowners who had underwater mortgages are now above water. These happy homeowners can see the light at the end of the tunnel. They are no longer stuck in their homes for the rest of their lives. They can sell or refinance their mortgages with a cash-out refinance. Homeowners with equity can now consider a cash-out refinance mortgage. They can use the proceeds for a variety of reasons. We will compare the FHA cash-out refinance requirements versus other mortgage loan programs in this BLOG.

What Are FHA Cash-Out Refinance Requirements

HUD, the parent of FHA, has different rules and regulations on FHA refinance mortgage loans than other loan programs. HUD allows a rate and term refinance mortgage after six months from the date of the home purchase. To do an FHA Cash-Out Refinance Mortgage Loan, the homeowner needs to wait one year from the closing of their home purchase. The maximum FHA cash-out refinance amount is 80% loan to value. Borrowers can have a non-occupant co-borrower on an FHA cash-out refinance mortgage loan. However, the maximum loan to value amount is capped at 75% or less. HUD allows FHA Cash-Out Refinance on manual underwriting.

FHA Streamline Refinance With No Appraisal, No Credit, No Income

Current FHA mortgage borrowers who want to do an FHA refinance but have less than perfect credit and income has greatly reduced with higher debt to income ratios may be eligible for an FHA streamline refinance mortgage loan with no appraisal, no credit, and no income verification. The only requirement for an FHA streamline refinance mortgage loans is homeowners be timely on existing mortgage payments for the past 12 months. One 30-day late payment in the past 12 months may be permitted.

The Importance of Timely Housing Payments on FHA Streamline Refinance Mortgages

Cannot have been late on mortgage payments in the past 90 days. All other derogatory credit and late payments on the credit report are overlooked. Borrowers do need a full-time job. However, the income on full-time employment will not be verified. High debt to income ratios is ignored.

Fast-Track Streamlined Refinance Loan Program

HUD feels that since they originally underwrote and funded an FHA loan, they do not need order a second appraisal. HUD has an appraisal on file and since they have been paying timely on the current FHA loan, why order a new one. Homeowners have proven themselves they have been making timely payments and will continue to make timely payments is how HUD looks at it.

Conventional Loan Refinance Versus FHA Cash-Out Refinance Requirements

Conventional Loan Refinance Versus FHA Cash-Out Refinance Requirements

To do a conventional refinance mortgage after a home purchase, the homeowner needs to wait six months from the closing date of the home. With conventional loans, a homeowner can do a rate and term refinance or conventional cash-out refinance mortgage after six months from the purchase date of the home.

Loan To Value on Cash-Out Refinance Mortgages

The maximum loan to value on a cash-out refinance mortgage on a conventional loan is 80% loan to value. Many homeowners who have purchased their homes in the past few years have their homes appreciate double digits year after year with no signs of a slowdown.

States With Skyrocketing Home Values

The following states had double-digit returns on their home values:

  • North Carolina
  • South  Carolina
  • New Mexico
  • Oklahoma
  • Alabama
  • Mississippi
  • Georgia
  • Indiana
  • Utah
  • Maryland
  • Florida
  • Louisiana
  • Texas
  • Virginia
  • Ohio
  • District of Columbia
  • Minnesota
  • Wisconsin
  • Michigan
  • New Jersey
  • New Mexico
  • Minnesota
  • Iowa
  • West Virginia
  • Vermont
  • California

Most homeowners who put 3.5% on FHA loans or 5% down payment on conforming loans do not realize that their homes have appreciated more than 20% in the past few years.

Equity Is Key To Do A Cash-Out Refinance

Home values have appreciated double digits consistently in the past few years in many parts of the country. Many homeowners do not even realize this. Here is a typical case scenario on how homeowners realize they are no longer in the red:

  • Millions of homeowners who had underwater mortgages
  • this is when the mortgage balance is higher than the value of the home
  • homeowners thought that they were stuck in their home for decades to come
  • They are shocked at how much their homes have appreciated
  • they are no longer hostages in their homes
  • they can now either do a cash-out refinance or sell their home
  • they can either downsize or buy a larger home

Fannie Mae and Freddie Mac are the two government-sponsored enterprises, GSE:

  • Fannie Mae and Freddie Mac set mortgage guidelines o Conventional Loans
  • Homeowners can do a cash-out refinance on a Conventional Loan up to 80% Loan To Value
  • Borrowers can do a rate and term refinance mortgage of 95% Loan To Value
  • Borrowers can refinance their FHA Loan to a Conventional Loan and Vice Versa

VA Versus FHA Cash-Out Refinance Requirements

Borrowers who have a VA Certificate of Eligibility can do a 100% Loan To Value cash-out refinance on a VA loan. However, not everyone qualifies for a VA loan. Borrowers need to be a veteran with a COE in order to qualify for a VA loan. Capital Lending Network, Inc. has no overlays on VA loans. Capital Lending Network, Inc. is a mortgage company licensed in 48 states with no mortgage overlays on government and conventional loans. To qualify with a lender with zero overlays, please contact us at CLN Mortgage at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com.

HUD Cash-Out Refinance Guidelines On FHA Loans

In the following paragraphs, we will further discuss HUD cash-out refinance guidelines on FHA loans which were reduced from 85% to 80% LTV. The housing market has been booming in the past several years.

HUD and the FHFA Increase FHA and Conforming Loan Limits For Six Years In A Row

Due to skyrocketing home prices, both HUD and the Federal Housing Finance Agency (FHFA) have increased FHA and Conventional loan limits for the past four years. The FHA loan limit for 2022 is now capped at $420,680. The conventional loan limit for 2022 is now capped at $647,200. The great benefit of skyrocketing home prices is homeowners who have purchased homes several years ago. These homeowners are sitting on equity. Many homeowners are sitting on a lot of equity that they are eligible to do a cash-out refinance.

HUD Cash-Out Refinance Guidelines Goes From 85% To 80% LTV Due To Skyrocketing Home Values

Many homeowners who have purchase homes several years ago are sitting on a lot of equity. Home values have been skyrocketing year after year for the past several years. With equity, they can benefit from a cash-out refinance. Proceeds from cash-out refinance are tax-free. Homeowners can do anything they want with the proceeds. They can even use it to invest in another property or a second home.

HUD Lowers Loan To Value on FHA Cash-Out Refinance Mortgages

HUD Lowers Loan To Value on FHA Cash-Out Refinance Mortgages

HUD reduced the loan value from 85% to 80% because they were concerned about how fast home values were rising in such a short period of time. The coronavirus pandemic did not make a dent in the 2022 housinmarket. Many thought the COVID-1. pandemic would trigger another housing meltdown like the 2008 financial crisis. However, the housing market is stronger than ever. Economists do not anticipate any slowdown in the housing market in the years to come. There is still more demand for housing than inventory. Mortgage rates are at historic lows In the following paragraphs, we will discuss and cover the HUD Cash-Out Refinance Guidelines On FHA loans.

How Does Cash-Out Refinance Mortgage Process Work

In order to be able to do a cash-out refinance mortgage, the homeowner needs equity in their homes. Alex Carlucci of CLN Mortgage is a cash-out refinance mortgage expert.

Alex Carlucci said the following:

An FHA cash-out refinance allows borrowers to refinance their existing mortgages while cashing out additional equity for home improvements, debt consolidation, investments, and more. Recently, the FHA updated their guidelines to permit a maximum loan to value of 80% for cash-out refinances. An FHA cash-out refinance is a new mortgage against the home which pays off the existing mortgage, plus provides additional money from the remaining equity in the home to be used for other purposes.
The team at Capital Lending Network, Inc. is swamped with the flood of daily FHA cash-out refinance mortgage applications. Never have we been so busy with taking new cash-out refinance loan applications. This is primarily due to the sudden appreciation of homes in the past several years and the historic mortgage rates.

HUD Cash-Out Refinance Guidelines And Eligibility Requirements

FHA loans are the most popular loan programs for homebuyers and homeowners. Due to the government guarantee by HUD, lenders are able to offer FHA loans with lenient lending guidelines at competitive rates. Per the HUD Cash-Out Refinance Guidelines, borrowers need to meet the minimum Agency HUD Guidelines.

Here are the minimum HUD Cash-Out Refinance Guidelines:

  • Borrowers need to meet a minimum credit score of 500 FICO
  • There is a two year waiting period after the Chapter 7 Bankruptcy discharge date
  • There is a three year waiting period after foreclosure, deed in lieu of foreclosure, short sale
  • Borrowers in a Chapter 13 Bankruptcy repayment plan can qualify for a cash-out refinance after being in the repayment plan for at least 12 months
  • They can use the proceeds from the cash-out refinance to pay off the Chapter 13 Bankruptcy
  • There is no waiting period after Chapter 13 Bankruptcy discharged date
  • Terms and conditions need to be met from an approve/eligible per automated underwriting system or manual underwriting
  • Maximum 80% loan to value
  • Need to have waited 12 months after closing the original home loan to do a cash-out refinance
  • Six months waiting period after closing the original home loan on rate and term refinance
  • Timely payments in the past 12 months on all monthly debts
  • Zero mortgage late payments in the past 12 months

Capital Lending Network, Inc. has no lender overlays on government and conventional loans. The team at CLN Mortgage Group are experts in originating and funding FHA cash-out refinance mortgages.

Pricing Adjustments On FHA Cash-Out Refinance Mortgages

Homeowners planning on doing a cash-out refinance with an FHA loan should be preparing by boosting up their credit scores. An experienced loan officer can help advise on how to boost your credit scores. The higher the credit scores, the lower the mortgage rates. Cash-out refinance is considered riskier loans by lenders. Therefore, there is a loan level pricing adjustment on cash-out refinance mortgages. Mortgage rates on cash-out refinance can be 0.50% to 0.75% higher than rate and term refinance. To qualify for an FHA cash-out refinance with a five-star national lender licensed in multiple states, please contact us at CLN Mortgage at 800-900-8569 or text us for a faster response. Or email us at contact@capitallendingnetwork.com  or start the qualification and pre-approval process by clicking the Apply Now link.


Alex Carlucci is an experienced private mortgage banker. He has been in the mortgage industry for 20 years, and prides himself of his excellent customer service and communication.