Where can you get an 85% LTV (Loan-toValue) Cash Out Refi?

[Erik Sandstrom]

As of a couple months ago, not only FHA but also Freddie Mac discontinued their 85% Loan to Value cash out refinance program and limited all transactions (cash out) to 80%. Assuming they are doing this because they have determined the risk level is higher on those products and possibly the default rate. This coincides also with the automated underwriting system sometimes not approving loans that still do meet the guideline criteria to qualify.

Are there any options out there that are reasonable for a 85% loan to value cash out refinance? Yes, there are.

The options available for this high LTV cash out refinance are not going to be considered conforming loans, they would fall into the Non-QM (Non-Qualified Mortgage) which still has amazing terms available. I ran an example on this earlier today and the scenario is below:

471,000.00 - Value
400,000.00 - Loan Amount
Single Family Residence/Owner Occupied
85% Loan to Value
Cash Out Refinance
760 FICO (Ran for simulator purposes)

10/8/2019 - Rates of course subject to change based on market and other aspects

Option 1: (Available if you're paying off debt, cash directly to you isn't allowed)
30 Year Fixed (5/1 & 7/1 ARM's available at a lower rate)
Interest Rate: 5.625 - no points, lender fees 1695 + title, escrow...etc
Interest Rate: 5.00 - 1.1% points, lender fees 1695 + title, escrow...etc
*This product does NOT include mortgage insurance*

Option 2: (If you strictly want cash out to you)
30 Year Fixed (5/1 & 7/1 ARM's available at a lower rate)
Interest Rate: 6.125 - no points, lender fees 1695 + title, escrow...etc
Interest Rate: 5.625 - - 1% point, lender fees 1695 + title, escrow...etc
*This products also does NOT include mortgage insurance*

Option 3: Renovation Home Loans!
If you're looking to just do improvements to the home, you can exceed the 85% threshold with a renovation home loan in many cases because the appraised value is based on what the property will be worth after the repairs are made. This is a great option if you don't need the cash but want to improve/update/fix your home.

Ultimately, even though the government and conventional loan options aren't available...There are still ways to get the cash out refinance with favorable terms depending on your credit profile. Please let me know if you have any questions about these products I would be happy to answer them.

Here's my direct contact information: [email protected] or 619-379-8999

 

[AZ_Dreaming]

Hi Erik,

I know these are Non-QM products, so FHA / Conventional rules don't apply, but how would a chapter 7 bankruptcy affect being able to qualify for one of these?

Specifically the renovation home loan. Just exploring our options.

BK almost 4 years old. FICO score around 665. Home value would be ~$350k after updates (is there a special type of appraisal for "what could this house be worth?") Would be refinancing to pay off first and charged-off second totaling about $240k.

Thanks.

 

[Erik Sandstrom]

Hey AZ_Dreaming! Closing a manufactured property out there in Vail, AZ this week.

For the renovation products, here's a breakdown specifically for you to think about:

1. FICO score of 665 usually FHA 203K will show a better benefit on the monthly payment, BK seasoning is only 2 years for that product.

2. Conventional may not be the best option depending on the equity position as you mentioned above. BK requirements 4 years post discharge on a chapter 7. We can take a look and see what option would be better. To answer your question regarding how the appraisal would work - I'll explain that below:

Appraisal is done "Subject to completion of repairs" - so the appraiser will be taking into consideration the upgrades being made on the home and the new value will be based on that instead of what it is currently. That allows you to borrow more to repair/make improvements to the home than you would via a straight cash out method. You would want to get the bids from contractors of the work that is being done and give that to the appraiser.

Ultimately that would be the better route for you if you qualify, the non-QM rates are a bit higher than regular conventional or government which it sounds like you qualify for FHA now, conventional very soon.