August 9th, 2019
Cashing out for FHA borrowers is about to get a little tricker. The Federal Housing Administration is making changes, and starting on Sept. 1, the top LTV on FHA cash-out loans will be reduced from 85% to 80%. It’s interesting to note that FHA cash-out loans perform extremely well and have lower foreclosure rates (less than 0.5%) than FHA no cash-out, FHA streamline refi, and conventional cash-out loans. So with this move, should we also expect a reduction in MIPs? Nope, those are remaining the same.
This rule change will impact many FHA borrowers who were hoping to tap into their home equity for things like debt elimination. There is still time, however, so as a loan officer you should be notifying your FHA clients about the change because many may want to move quickly. Of course, tapping into equity can be risky business if done flippantly or done for the wrong reasons. On FHA loans, the main benefit of cashing out up to 85% is typically for debt consolidation and elimination, so take the time to look at multiple scenarios with your FHA borrowers and act wisely. See what total payment reductions could do to their financial pictures and take advantage of the current rule before the Sept. 1 deadline.