FHA refinances: What you need to know nowJeff Mifsud FHA loans, Mortgagee Letter 08-40, upfront mortgage insurance premium, LTV ratio, HOPE for Homeowners
The most recent changes to the Federal Housing Administration
(FHA) refinance guidelines became effective Jan. 1, 2009. Keep in
mind that the Mortgagee Letter citing these changes also repeated
many standing guidelines, which I will do here, as well, as a
courtesy to readers unfamiliar with FHA guidelines.
Here are the 10 things you need to know about the updated
refinance guidelines published in Mortgagee Letter 08-40:
• The maximum loan-to-value ratio (LTV) for rate and term
refinances (including streamlines with an appraisal) is 97.75
• The maximum LTV for cash-out refinances is 95 percent
for loan amounts less than the conforming limit and 85 percent for
loan amounts at or above the conforming limit. (It must have 12
months seasoning and no 30-day late payments.)
• Two appraisals will be required for all cash-out
refinances with an LTV above 85 percent.
• The mortgage must be current for the month due.
• New or current second mortgages are eligible with no
maximum combined LTV.
• A loan amount for streamlined refinances without an
appraisal cannot exceed the original loan amount.
• Upfront mortgage insurance premium (UFMIP) rates stand
at 1.75 percent for all rate and term and cash-out refinances, and
1.5 percent all streamline refinances. • The FHASecure
refinance has been terminated.
• The loan amount can include first and second liens,
closing costs, discount points, current interest, pre-payment
penalties, pre-paids, late charges, and escrow shortages.
• Cash back on rate and term and streamline refinances
cannot exceed $500.
In addition to the above updates, FHA published changes to the
HOPE for Homeowners (H4H) program. As I mentioned in a previous
article, there isnt much interest on the part of lenders in
offering this program on a wholesale level. Nevertheless, I will
highlight the changes so that, as a professional, you're "in the
The five things you need to know about the updated H4H
1. The mortgage may have an LTV up to a maximum of 96.5 percent
of the current appraised value (including the UFMIP), provided the
borrowers ratios do not exceed 31 and 43 percent.
2. If the mortgage has an LTV of 90 percent or less of the
current appraised value (including the UFMIP), the borrower's
ratios may be up to 38 and 50 percent.
3. Borrowers may immediately qualify for the program without any
trial modification process.
4. Lenders can now offer the H4H mortgage with a 40-year
5. The program now allows two-, three- and four-unit
As the yield spread premiums have decreased, hopefully your FHA
expertise has increased. Loan originators who have truly taken the
time to learn how to do FHA loans well are having a much easier
time getting into real estate offices and getting referrals.
I was recently in a coffee shop when a group of three people sat
at the table next to me for a meeting and began talking about the
foreclosures in the area. (I don't make it a habit to listen to
other people's conversations, but it was quite impossible in this
case not to!) It seemed one was an asset manager for a bank, and
was meeting with two real estate agents. One of the real estate
agents started singing the praises of this terrific loan originator
who does such a great job for her. She commented that the loan
originator knows how to get deals through because the loan
originator knows how to package the loans properly. I share this
story because it illustrates the importance of being knowledgeable
and competent in taking and packaging FHA loans; it's the reason
this real estate agent had rave reviews about this loan
Take the time to learn FHA loans and you will always have a
place in real estate offices! Study the guides and mortgagee
letters to internalize the program, get an FHA mentor, and go talk
to FHA referral sources. With the right combination of knowledge
and fortitude, you too can become an FHA expert in your
marketplace. Go FHA!
Jeff Mifsud founded Southfield, Mich.-based Mortgage Seminars LLC in 2004,
has been an FHA originator for 12 years, is a contributor to LoanToolbox.com and is a
former FHA underwriter. Jeff may be reached at (877) 342-9100 or