Even though GSE and Federal Housing Administration (FHA) loan limits will decline to $625,500 at midnight Friday, borrowers with high balance FHA-insured loans can still refinance these products as long as they don't engage in a cash-out refinancing.
According to FHA guidance issued in August, which received scant attention in the media, that means during the fourth quarter a borrower with a $700,000 FHA-insured loan can refinance that balance to take advantage of low mortgage rates.
(Over the past three years, borrowers in high cost areas have been able to get Fannie Mae, Freddie Mac and FHA financing of up to $729,750.)
But the guidance issued in August is “really geared toward streamline refinancings," said Bud Carter, a FHA expert at Potomac Partners, a Washington consulting firm.
In a FHA streamline refinance, the loan amount cannot be increased. In addition, the refinancing must lower the borrower's monthly payment by at least 5%.
The FHA guidance is effective from Oct. 1 though Dec. 31.
"I would assume they will continue with this policy after Jan. 1," Carter told ASR sister publiciaton National Mortgage News.
He said it is "theoretically” possible to do a FHA rate-and-term refinance or cash out refinance for high balance loans. But it will be more difficult than a streamline due to the conditions spelled out in the FHA mortgagee letter dated Aug. 19.