Eugene Loan Guy

What is a “cash-out” refinance? Does it mean that the person refinancing a mortgage is walking away with a pocketful of cash? To answer that question, after the interesting post from Danny Thornton about “no-cash-out” or rate and term refinances is my latest quest. First, cash out refinance does not necessarily mean cash in hand. A new loan can be cash out refinance if the loan is used to pay off an existing second mortgage that was not used to purchase the property. In a case like this, there might be no cash left over or even require cash to be brought in to close and it would still be considered a “cash out” refinance.

Government or Conventional

There are basically two different loan products today, conventional and government loans. Each of them differs from the other. With conventional financing, the maximum loan to value (LTV) for cash out refinance is now limited to 80 percent LTV for owner occupied properties without mortgage insurance. It is possible to go to 85%, however, mortgage insurance is very difficult to obtain. That means that if you own a home that is worth $200,000, the maximum you can receive on cash out refinance is $160,000, including closing costs. Depending on the property, an investment or second home property may get up to 75% loan to value on cash out. Normally, on a conventional refinance, there may be up to $2,000 paid to the borrower at closing without being considered cash out. This will vary from lender to lender.

FHA, VA and USDA

When discussing government loans, there are three, FHA, VA and USDA. USDA does not allow cash out refinances. FHA has cash out limit of 85% loan to value. This means that on the same $200,000 home, the maximum LTV on cash out is $170,000, including closing costs but not including the upfront mortgage insurance (UFMIP) premium. Monthly mortgage insurance is always included on an FHA loan over 15 year duration, no matter what the loan to value for a minimum of 5 years and 78% LTV. 15 year loans under 90% loan to value do not have monthly mortgage insurance.

VA to 100% LTV

Most lenders are now limiting VA cash out refinance to 90% LTV. This would mean that this same home would be available up to $180,000 including closing costs but not the funding fee. I do have access to one lender, currently, that will still make VA cash out refinances to 100% loan to value. This means you could borrow $200,000 on this same home using VA financing. Needless to say, you would need to be eligible for a VA loan. Almost anyone with three months or more active duty will qualify.

DU Refi Plus & LP Relief Refi

There has been a lot of discussion about the Fannie Mae DU Refi Plus and Freddie Mac Relief Refinance programs that allows a person to refinance their home if they owe more than 80% loan to value without having to pay for mortgage insurance. Neither of these programs allow cash out and probably will not allow a 2nd mortgage to be included in the refinance even if it was used to purchase the property. Additionally, if there is currently mortgage insurance on the loan, it is much more difficult to refinance and must be done through the company servicing the loan.

There are a lot of things to consider when looking at cash out refinance. Will it help your current financial situation? How long will I own this home? Does it make good sense? These are questions that you should discuss with a trusted mortgage professional. That is where I come in. I am willing to assist you in any way that I can in making the right decision. The choice is finally yours, but please seek advice. You can reach me at eugeneloanguy@gmail.com or 541-342-7576/5471-221-3455 Cell.

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