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FHA – 2nd FHA Loan – Requirement for Equity vs. LTV?
Question:
My client is moving out of state from their current property and renting their current FHA-financed residence. Their current home has an LTV of less than 75%, but they also have a HELOC. What are the FHA requirements for calculating the LTV?
Answer:
The guideline doesn’t actually use the requirement of 75% LTV (but I have to admit that I had to review the guideline myself to double-check, as I always think of it as a requirement for ‘75% LTV’ as well.) The guideline requires 25% EQUITY (see the guideline below). When determining total equity, you would have to consider all liens against the property regardless of their first or second position.
Reference:
4000.1, II, A, 4, c, xii, (I)
Including the Property being vacated by the Borrower, the Mortgagee must obtain an appraisal evidencing market rent and that the Borrower has at least 25 percent equity in the Property. An FHA Roster Appraiser is not required to complete the appraisal.