Refinances still possible up to 97% Loan to Value

I know this is off topic from what I usually talk about but I get many questions about refinancing that I would like to answer.

With the drastic decline in property values in the State of California, fewer loan options, and tighter qualifying guidelines refinancing your home has become increasingly more difficult.

There are still refinancing options available and with interest rates on the rise, this is kind of one of those now or never moments.

Let me first introduce and explain some basic lending terms you will need to know:

Loan to Value: The amount of your proposed loan amount (or existing loan amount) as a percentage of the appraised value of your home.

Rate and Term Refinance: This means you are not getting any cash back or taking any equity out of your home with this refinance.

NOTE: If you are consolidating a first and a second mortgage and the the second mortgage was not used to purchase the home – this is considered a Cash Out refinance.

Cash Out Refinance: This typically means that you are consolidated credit card debt, consolidating “non purchase money” first and second mortgages or taking cash out for home improvement or other reason.  The guidelines are significantly more restrictive for families trying to borrow against the equity in their in this market of falling values.

FHA Refinancing Options

FHA offers the best options for families that owe more or are trying to borrow more than 80% of the appraised value of their home.

FHA allows you to refinance up to 97% Loan to Value on a Rate and Term refinance.

FHA allows you to refinance up to 90% Loan to Value on a Cash Out refinance.

All FHA mortgages require and upfront mortgage insurance premium that can be financed into the final loan amount and may exceed the Loan to Value percentages stated above.

All FHA mortgage also require a monthly mortgage insurance premium.

Currently FHA will allow loan amounts up to $729,750 depending on the county you live in.

Conventional Refinancing Options

Conventional refinancing options above 80% Loan to Value have the challenge of requiring Private Mortgage Insurance.

To qualify for Private Mortgage Insurance you may only do a Rate and Term refinance up to 90% Loan to Value and meet the additional qualifying requirements of a minimum 740 credit score and maximum 41% debt to income ratio.

Currently in California you cannot do a Cash Out refinance over 80% because Private Mortgage Insurance companies will not offer coverage.

Rate and Term refinances are allowed up to 90% Loan to Value as long you also qualify for Private Mortgage Insurance.

It’s Got to Make Sense

There are several reasons to refinance your home.  Many loan officers in the past would push to do a refinance just to lower your monthly payments.

This does not always make sense to do because many times you’re resetting a loan that you’ve been paying on for several years back into a 30 year fixed mortgage.

It is important that you analyze of the costs and benefits when you are considering a refinance to make sure you fully understand all of your possible options and that you may choose the best one for you and your family.

Interest Rates Going Up

It certainly appears that interest rates are going to be rising soon, especially since the Fed confirmed on Wednesday that they are going to discontinue purchasing mortgage backed securities.  You can read more about this in an article I posted back in December.

For a free analysis of your current mortgage situation simply click on the “Quick Apply” button on the top left of this page or call to discuss your options.

Hope you found this helpful for those of you that are already homeowners.  Till next time.

Other articles about this topic that might interest you:

1. CalSTRS Conforming / Non Conforming Loan Programs – Purchase, Refinance, Cash Out NOTE:  This is NOT the CalSTRS 80/17 Purchase Loan Program Summary: This loan program is available for the Purchase of...
2. CalPERS Home Loan Options for California Teachers and Public Employees The following information can be found on the CalPERS member site here and has been summarized and reproduced here for...
3. CalPERS Home Loan Options for California Teachers and Public Employees The following information can be found on the CalPERS member site here and has been summarized and reproduced here for...

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