Freddie made a change to their “cash out” requirements on their limited rate term refinance. Cash back is now allowed to be the greater of 1% of the mortgage amount or $2000. This is more allowed cash out to the borrower!
This is not talking about a loan where your house has a balance of $150,000 and you have a current value of $350,000 – and want to take out $50,000 (raise the balance of the mortgage to $200,000) to fix the kitchen, or pay off college debt (whatever). No, that is a Cash Out Refinance.
The maximum you could take out in that kind of cash out situation is based upon the value. In this case, the $350,000 x 80% means that you can take cash out of your house and have a mortgage of no more than $280,000.
Cash Out With a Rate Term Refinance
The change Freddie Mac recently rolled out has to do with a Rate and Term Refinances. So (for instance) you have a 30 year mortgage, and you want to go to a 20 or 15 year mortgage. A mortgage that is pretty much just changing the TERMS of your mortgage (maybe the interest rate – we could be taking you from a variable rate to a fixed rate).
Another reason some folks are refinancing is the change in the Tax Code that happened at the end of 2017. With these changes, home equity loans no longer have tax deductions available. For purchase transactions, the mortgage interest deduction will likely remain in place, but the second mortgage deductions were removed with the bill.
In those situations we have been very limited in the amount a borrower could have left over in cash after closing. With this new change, it could be very helpful to borrowers who could take advantage of paying off a credit card, or using the money to go on vacation!
Fannie Mae guidelines on cash back from a rate term refinance is still the lessor of 2% of the mortgage amount or $2000. Our Underwriters reached out to our FNMA rep and they might make a change, but when, what they would do is unknown at this time.
Here is the potential change in max cash out on the two ways:
Refinancing and PMI in NC
Refinancing could let you get rid of private mortgage insurance (PMI). Most folks want to avoid PMI… but they don’t realize that they are happily paying a “kind” of mortgage insurance no matter what kind of loan they are getting! If you have a Government Mortgage (FHA, VA or USDA) you have a kind of PMI that will never go away! So refinancing to a Conventional loan mean that you can get rid of this monthly expense!
Removing PMI on Conventional Loans
- Automatic – Occurs when a borrower hits 78% LTV of the scheduled amortization. Cannot be used if borrower pays down balance to get to 78% faster than scheduled.
- Borrower requested (original value) – Most often occurs when a borrower pays down a balance faster than scheduled and requests PMI to be removed based on the value used at closing.
- Borrower requested (new value) – Occurs when a borrower requests PMI removal based on a new appraised value, and the loan has been open for at least two years.
If you have questions about refinancing your home, or how to do a renovation loan with one of our products – call Steve and Eleanor Thorne 919 649 5058
I try and answer all questions :)