Changes to Limited-Cash Out Refinances

A limited-cash out refinance is a refinance where typically, the home owner receives little to no-cash back at closing. It’s also referred to as a “rate-term” refinance. A limited cash-out or rate-term refinance offers better interest rates and/or pricing for interest rates than a true “cash out” refinance.

Fannie Mae currently will allow 2% of the new loan amount up to $2,000 for cash back to the borrower at closing.

Recently, Freddie Mac updated underwriting guidelines to allow up to 1% of the new loan amount for to be provided to the borrower at closing. So if a home owner in the greater Seattle area had a new loan in the amount of $650,000, they could potentially receive up to $6,500 back at closing assuming the primary mortgage being paid off, reserves and closing costs total $643,500 ($650,000 – $6,500).

Don’t forget, with a refinance, you will receive a refund of the balance of your existing reserve account balance a couple weeks after closing from your current mortgage servicer (assuming you have an escrow account). This is because you start a new escrow account with the refinance for property taxes and home owners insurance (if applicable).

If you are considering refinancing your home located anywhere in Washington state, I am happy to help you! Click here if I can provide you with a “no-hassle” mortgage rate quote for your personal scenario.

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