The Federal Housing Administration determines its lending limits based on the type of home, median home values at the county level, and limits that Fannie Mae and Freddie Mac set on conventional mortgage loans. Maximum loan limits for refinance loans insured by FHA vary depending on the housing market conditions in the county where a home is located. In most areas of the country, FHA loan limits are 115 percent of the median home price, according to the Department of Housing and Urban Development.
Loan Limits Vary
The loan limit floor for FHA-insured home loans is set at 65 percent of $417,000, which is the national conforming loan limit for a single-dwelling home, according to Department of Housing and Urban Development 2013 guidelines. A loan limit floor is the lowest that a limit can go. Although the floor increases for two-, three- and four-unit properties, areas where loan limits exceed $417,000 for a one-unit home are classified as high-cost areas. Loan limits are more in high-cost and high-cost-ceiling areas where median home prices are higher than in other areas of the country. Special exception loan limits also apply to areas where construction costs are higher.
Your Home's Appraised Value
If you want to refinance with an FHA-backed loan, the home must be your main residence. Cash-out refinancing is an option if you have equity in the home and you bought the property at least 12 months before you decide to refinance. Generally, FHA refinance allows you to refinance your current mortgage for up to 85 percent of your home’s appraised value as long as you’ve made a minimum of 12 timely payments on your original loan and don’t borrow more than $417,000.
FHA Streamline Makes Refinancing Easier
An FHA streamline refinance is an option if you are underwater on your FHA-insured mortgage, owing more than your home is presently worth. Although you can't take out cash, an FHA streamline refinance allows you to get a lower interest rate than you are currently paying without the need to get an appraisal as a condition for approving the refinance. To qualify, refinancing your existing mortgage must lower your monthly payments, and you must be paid up to date on the loan at the time you refinance.
Net Tangible Benefit
Before you can refinance your current FHA mortgage with an FHA streamline loan, you must show that refinancing will result in a "net tangible benefit." The lender will want to see that the new loan will reduce the principal, interest, and annual mortgage insurance premium that makes up your current monthly mortgage payment by at least 5 percent, according to HUD. If you are refinancing because you want to replace an adjustable rate mortgage with a fixed rate mortgage, the same rule applies -- your new loan payment must be lower than the old.
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