Accessing home equity in the form of a cash out refinance serves many needs. From renovating your home to consolidating debt, cashing out equity is a great option for homeowners. Recently, the amount of cash out allowed has changed for many loan types.
FHA, VA & Conventional Cash Out Limits Change
First and foremost, all loan programs limit a homeowner’s cash out amount. They do this by limiting the loan to value on cash out refinances. Recently, FHA, VA & Conventional (Freddie Mac side) all reduced cash out loan to value or “LTV” limits.
FHA Cash Out Change
For quite some time, FHA home loan rules allowed a cash out home loan to equal up to 85% of a primary residence’s appraised value. Effective for all FHA case numbers assigned on or after 9/1/2019 FHA is allowing a maximum loan to value of 80% on cash out refinance transactions.
VA Cash Out Change
While VA homeowner’s have enjoyed primary residence cash out refinance loans up to 100% of their home’s appraised value, VA also trimmed cash out LTV’s. Effective 8/16/2019, VA limits loan amounts to 90% of appraised value on a cash out refinance.
Conventional (Freddie Mac) Change
Conventional home loans fall into 2 categories – Fannie Mae & Freddie Mac. Each investor differs from the others guidelines in certain areas. Maximum cash out loan to value limit was one of those areas. Prior to the change Freddie Mac allowed cash out loans on a primary residence to equal up to 85% of the home’s appraised value. As of 9/4/2019, Freddie Mac limits max loan to value on cash out refinances to 80% of appraised value. Fannie Mae has been at 80% loan to value on primary residence cash out refinances throughout.
Why Cash Out Changed
Looking at the change dates one thing stands out. Each investor’s cash out loan to value change date is within a stone’s throw of each other. Whether or not you believe in coincidence this stacks up to a more than just that. In short, this shift is first and foremost a tweak back to normal. In addition, investors are possibly hedging themselves based on the potentially larger volume they see coming due to the recent drop in mortgage rates.
By Jeremy House