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Starting Sept. 1, the Federal Housing Authority is expected to cap the loan amounts for cash-out refinancing at 80%, MarketWatch reports.
Previously, borrowers could take out up to 85% of the property’s equity.
The new loan amount limit is in line with the limits already in place at Fannie Mae and Freddie Mac.
Cash-out refinances have grown in popularity in recent years in tandem with ballooning home values across much of the country. Many people have turned to these loans to pay for home improvements, including renovations intended to aid older homeowners as they age in place rather than downsize to a smaller home or move to a retirement community.
But that uptick in cash-out loans came with a drawback: Added risk. FHA officials said that the growth in cash-out refi activity in recent years has added risk to the government mortgage program. Back in January, foreclosure starts on FHA-backed loans hit a two-year high. Scheduled foreclosure auctions on FHA loans increased 3% through the first half of the year compared to the first half of 2018, according to data from Auction.com, even as overall scheduled foreclosure auctions are down 14%.
