Dear Dr. Don,
I am refinancing my home with an FHA loan. I was told at one point that the lender could do the refinance at 97 percent loan-to-value. Now they said the law has changed and that they can only do a 95 percent loan-to-value. Can you please tell me what it is?
— Stephen Searches

Dear Stephen,
It depends on what type of refinancing you’re doing. A cash-out refinancing is limited to 95 percent loan-to-value up to the program limits for an FHA loan. If you’re not looking for a cash-out refinance, the maximum loan-to-value is 97.75 percent.

The rules bounced around quite a bit in 2008, especially as they relate to the mortgage insurance premiums paid by FHA borrowers. But the minimum down payment is not 5 percent of the purchase price for a home purchase. Rather, the minimum down payment for a new FHA loan increased (effective Jan. 1, 2009) from 3 percent to 3.5 percent.

Instead of private mortgage insurance, or PMI, an FHA loan carries a government guarantee. The typical FHA borrower pays for this guarantee in two ways: First, with an upfront payment of 1.75 percent of the loan amount. Second, with an annual insurance premium of 0.55 percent on the outstanding loan balance. The annual premium is spread over the year rather than being paid as a lump sum.

In most cases, the annual insurance cost to the homeowner will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property, whichever is longer.

Because of all the changes in 2008, it’s easy to get dated information from lenders. The best source of information is either the FHA or HUD Web sites, but there are some challenges there, too, in getting the most recent information.

You could talk to a HUD counselor to firm up the latest information using its “HUD Approved Housing Counseling Agencies.”