GUIDELINE FOR CASH-OUT FINANCING

Many homeowners would benefit from a cash-out refinance in advance of retirement, but they will find guidelines stricter than in the past.  Warning: the guidelines keep changing and any loan-to-value (LTV) greater than 80% requires mortgage insurance (and each MI company has its own rules).

With those caveats, here is a brief survey of the basic guidelines:

Fannie Mae/Freddie Mac conforming loans can go to a maximum of 90% LTV for single family and town homes.  Condos have a maximum of 85% LTV.  Planned unit developments have an 80% LTV limit.

All require a minimum credit score of 660 and are very strict on the debt-to- income ratio (no more than 45%).

Note: MI companies will basically not insure any cash-out loans, except for some special circumstances, making loans with LTVs above 80% difficult.

Jumbo loan programs vary widely, but typically with an 80% LTV and a credit score of at least 660, you can take out a maximum of $250,000 in cash.  With a score above 700, the maximum cash-out limit is $500,000.

At a 70% LTV and a minimum score of 620, the cash-out limit is $200,000. At the same LTV and a 680 credit score, the cash-out limit is $700,000.

FHA will allow cash-outs ($200,000 maximum) up to 95% of the value of the home so long as you don’t exceed the FHA loan limits for your area.   If your home is in a “declining” market, the limit is 90%.

If you want to take advantage of the higher, temporary FHA limits that will take you over the regular area limits, your LTV is maxxed at 85%.

Fannie Mae/Freddie Mac conforming jumbo loans have a 75% LTV loan limit.  Fannie Mae will do these loans with a minimum score of 700, while Freddie Mac requires a 720 score.