With interest rates currently low, thousands of people will be
considering refinancing their homes. Many will elect to use a cash out
refinance option. If you're one of the millions of Americans who currently have
a home mortgage with the Federal Housing Administration, the new FHA cash out refinance changes
made in 2019 which may impact your ability to take cash out of your home.
Cash out refinance changes
During 2019, the FHA allowed borrowers to take up to 85 percent of the
value of their homes when doing a cash out refinance. This was a reduction
which went into effect in 2009 in response to the mortgage crisis which was
going on at the time. In October, the FHA announced new changes which will have
an impact on those borrowers who are interested in taking cash out for the purposes of paying off credit cards,
paying for educational expenses, or for other reasons.
One of the reasons for these changes was to reduce the risk lenders
face with defaulted mortgages. Keep in mind, at one time, borrowers were able
to borrow up to 95 percent of the value of their homes when doing a cash out
refinance. There were specific requirements including two (2) appraisals and
excellent credit. For many, this new change may have an impact on whether they opt
to refinance their mortgage during 20202.
FHA Single Family Loan Limits
For those borrowers who are interested in buying a single-family home,
or are considering refinancing their existing mortgage, FHA loan limits are critical.
The new guidelines set out by the FHA for single family homes in low-value
areas is $314,827 and those in high-value areas is $726,525. The FHA estimates that slightly more than 80
percent of all borrowers will be subjected to the $314,827 limits.
Borrowers should also be aware that there are loans
available for home repairs which have less stringent guidelines than those loans
which are considered cash-out refinances. These loans, known as 203(k) loans,
allow homeowners to make all types of repairs without worrying about how to pay
for the repairs out of pocket. There are certain guidelines which must be followed,
and the minimum loan amount is $5,000. Structural repairs, modernization, and energy
efficient changes are all allowed under this program as are changes to
accommodate a resident who needs their home modified due to disability.
Homeowners and home buyers are encouraged to review the information provided on the FHA website for additional information including credit requirements before they pursue financing.
