Yes, FHA allows cash out refinancing.
A Cash-Out Refinance is a refinance of any mortgage or a withdrawal of equity where no mortgage currently exists, in which the mortgage proceeds are not limited to specific purposes.
Cash-out refinance transactions are only permitted on owner-occupied Principal Residences.
The Property securing the cash-out refinance must have been owned and occupied by the Borrower as their Principal Residence for the 12 months prior to the date of case number assignment.
The Mortgagee must review the Borrower’s employment documentation or obtain utility bills to evidence the Borrower has occupied the subject Property as their Principal Residence for the 12 months prior to case number assignment.
Additional information for refinance transactions involving inherited property or to purchase the equity interest of an ex-spouse, see Handbook 4000.1.
Payment History Requirements
The Mortgagee must document that the Borrower has made all payments for all their Mortgages within the month due for the previous 12 months or since the Borrower obtained the Mortgages, whichever is less.
Additionally, the payments for all Mortgages secured by the subject Property must have been paid within the month due for the month prior to mortgage Disbursement.
Properties with Mortgages must have a minimum of six months of Mortgage Payments. Properties owned free and clear may be refinanced as cash-out transactions.
A Borrower who was granted Mortgage Payment Forbearance must have:
- Completed the Forbearance on the subject property; and
- Made at least twelve consecutive monthly payments within the month due on that Mortgage since completing the Forbearance Plan.
Required Documentation
If the Mortgage on the subject Property is not reported in the Borrower’s credit report or is not in the name of the Borrower, the Mortgagee must obtain a verification of Mortgage, bank statements or other documentation to evidence that all payments have been made by the Borrower in the month due, for the previous 12 months.
Where a mortgage reflects payments under a Modification or Forbearance Plan within the 12 months prior to case number assignment, the Mortgagee must obtain:
- a copy of the Modification or Forbearance Plan; and
- evidence of the payment amount and date of payments during the forbearance term.
Maximum Mortgage Amount
- The maximum loan-to-value (LTV) or combined loan-to-value (CLTV), if applicable, is 80.00 percent of the Adjusted Value.
- The combined mortgage amount of the first Mortgage and any subordinate liens cannot exceed the National Mortgage Limit as reflected in the National Housing Act’s Statutory Limits.
For additional information see:
- Handbook 4000.1 II.A.8.d.i(B)(1); II.A.8.d.ii (B)-(C); II.A.8.d.v available at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh