The High Balance FHA Loan program, also known as the Jumbo FHA Loan program, is currently the best way for Orange County home owners with combined loan balances over $417,000 but under $729,750 to refinance with cash out. Keep in mind that per Fannie Mae guidelines, if a borrower is combining a 1st mortgage with a 2nd (or HELOC) that was not used for the initial purchase, then the resulting refinance would be considered a "cash out" refinance even if the borrower was not pulling additional cash out.
Why FHA is the Best Way to Refinance a Cashout Loan Over $417,000
FHA guidelines allow for "cash out" refinancing up to 85% of the properties value, even if the new loan amount is over $417,000. Fannie Mae will not allow a "cash out" refinance over 60% of the properties value if the new loan amount will be over $417,000. To make matters worse, combining a 1st and 2nd mortgage (or Equity Line) that was not used to purchase the home is automatically considered a cash out refinance. 60% loan to value leaves a lot of Orange County home ownerswho have a 1st and 2nd mortgage in a lurch. Also, FHA allows FICO scores to be lower than the Fannie Mae "Agency Jumbo" program. Most Orange County FHA Lenders can refinance a homeowner with a FICO score as low is 620.
**For Orange County VA loan program eligible homeowners, the VA program would be even better than FHA. VA will go to 90% of the properties value, and has no monthly Mortgage Insurance.
FHA Cash out Jumbo Refinance Example
Lets assume a home owner in Orange County has a 1st mortgage of $400,000 with a 5 year fixed interest rate of 6.5%. (For those of you with interest rates under 5%, believe me, there are plenty of home owners who haven't been able to take advantage of low rates.) The payment on the 1st is $2,623. They also have a 2nd mortgage of $100,000 with a fixed rate of 6.25%, yielding a payment of $615. The 2nd has a balloon payment in 3 more years. The property value is $650,000. This homeowner would not be able to refinance under Fannie Mae guidelines. But with an FHA loan, they can. Assuming an FHA interest rate of 5.5% on a new loan amount if $510,000, the payment would be $3,129 for the principal, interest, and mortgage insurance. By going with an FHA program, the homeowner is able to combine their 1st and 2nd into a fixed rate FHA loan, eliminating the looming rate change on the 1st mortgage and the balloon payment on the 2nd mortgage.
If the homeowner also had additional cash needs (home improvements, debt consolidation, etc), it would be possible to refinance up to a loan amount of $552,500, or 85% of the $650,000 proeprty value.
Although Jumbo loans are making a comeback in Orange County, the underwriting guidelines are still very tight when compared to an FHA loan.
What Does it Take to Qualify for an FHA Loan?
Well, Stated Income is out of the question. FHA is a Full Doc program, meaning the lender will need to see tax returns for the most recent 2 years, paystubs for the most recent 2 months, bank statements for 2 months, and first born. Well, maybe not first born, but you get the picture. Although everything will be closely reviewed, FHA is fairly flexible with the debt to income ratios. FHA is also very flexible with the FICO score.
What Programs Does FHA Offer?
The two basic FHA programs are the 30 year fixed and the 15 year fixed. The 30 year fixed tends to be the more popular program, but there are advantages to the FHA 15 year fixed program. Beside the fact that your home will be paid off in only 15 years, FHA also does not have Monthly Mortgage Insurance on the 15 year fixed program when the loan to value is less than 90%, which will be automatic on a cash out refinance.
The first step in finding out if an FHA Jumbo Refinance will work for your situation is to contact an Orange County FHA Lender (with 20 year experience) who can answer all your questions and prepare scenarios based on your qualifications.
Contact us for your Orange County FHA Mortgage:
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