 FHA Loan Refinance Requirements
Current FHA Loan Refinance Requirements differ greatly from those of Conventional Conforming Loans.
Some of the distinct advantages of FHA Loan Refinances over other loan types are:
Credit Flexibility
FHA Loan Refinance requirements are not totally credit score driven, although it is required to have at least a 620 FICO score to obtain an approval through ENG Lending. FHA guidelines are written in a way that provides the borrower the benefit of the doubt that there had been, at some point in their past, circumstances beyond their control, and as long as the borrower has recovered from those circumstances in a reasonable manner, they're generally going to be credit-eligible for an FHA Loan Refinance.
Great Rates and Low Monthly Mortgage Insurance
A distinct advantage of an FHA Loan Refinance, as compared to a conforming loan, is great interest rates and lower monthly mortgage insurance (MI). Depending on the program, standard FHA Loan Refinance interest rates are usually better than a conforming 30-Year Fixed loan.
Smaller Home Equity Requirements
FHA Loan Refinance requirements have as low as a 2.25% home equity requirement for refinance (15% for an FHA cash out refinance). Other Loan Refinance programs don't allow this.
Variety of Property Types Allowed
While FHA Guidelines do require that the property be Owner Occupied (OO), they do allow you to refinance condos, planned unit developments, manufactured homes, and 1—4 family residences, in which the borrower intends to occupy one part of the multi-unit residence.
Streamlined Refinance and Assumable Loans
One of the most important advantages of an FHA refinance is the ability for the loan to be assumed. This gives the buyer a significant advantage in a high interest rate market. FHA loans are eligible for streamlined refinance, a program HUD offers that allows the borrower to easily refinance the loan to reduce their interest rate and lower their monthly payment.
More Protection to Keep Your Home
The FHA has been around since 1934 and will continue to be here to protect you. Should you encounter hard times after buying your home, the FHA has many options to help you keep you in your home and avoid foreclosure.
What factors determine if I am eligible for an FHA Loan Refinance?
To decide if you qualify for an FHA refinance home loan, we will look at:
- Your income and your monthly expenses. Standard debt-to-income ratios are 31/43 for FHA Loan Refinances. These ratios may be exceeded with compensation factors.
- Your credit history (this is important, but FHA's credit standards are flexible). A FICO score of 620 or above is required in obtaining an approval through ENG Lending.
- Your overall pattern rather than to individual problems you may have had.
To be eligible for FHA Loan Refinances, your monthly housing costs (mortgage principal and interest, property taxes and insurance) must meet a specified percentage of your gross monthly income (31% ratio). Your credit background will be fairly considered. You must also have enough income to pay your housing costs plus all additional monthly debt (43% ratio). These percentages may be exceeded with compensating factors.
Additionally, to be eligible for an FHA Loan Refinance, you must:
- Have a valid Social Security Number (SSN)
- Be legal resident of the United States
- Be of a legal age to sign on a mortgage in your state. There is no maximum age limit for a borrower.
Even if you are a U.S. citizen, you must have a valid Social Security Number (SSN). An individual Tax Identification Number (ITIN) is not an acceptable substitute for a SSN.
FHA Refinance Mortgage requirements do not require U.S. citizenship for eligibility. When you indicate on your loan application that you hold something other than U.S. citizenship, the lender must determine your residency status from the documentation you provide. If you are a permanent resident alien, you must provide evidence of lawful permanent residency issued by the Department of Homeland Security, Bureau of Citizenship and Immigration Services (BCIS), formerly the Immigration and Naturalization Service (INS).. If you are a non-permanent resident alien, you must show that you are eligible to work in the U.S. by producing an Employment Authorization Document (EAD) issued by BCIS.
Must I re-qualify to refinance with an FHA Loan?
If you're thinking about refinancing, you've already been through the mortgage qualification process when you qualified for a conventional, sub prime mortgage or FHA mortgage. The kind of FHA home refinance you're looking for will determine whether you need to go through the full credit and income qualifying process again.
 - If you already have an FHA loan and just want to lower your interest rate, you can use the FHA Streamline Refinance Program. With a FHA Streamline Refinance you don't have to worry about documenting your income and employment. You will only need a valid social security number.
- If you're refinancing a sub prime, conventional or any other non-FHA mortgage, or if you're seeking to refinance other debts besides your current mortgage into the new loan, or if you're looking to take cash out, you do have to credit-qualify. But that's not so hard either.
Can I get an FHA Loan Refinance after bankruptcy?
If you have been discharged from a Chapter 7 bankruptcy for two years or more, you are eligible to apply for an FHA Loan Refinance. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are also eligible to make an FHA loan application.
What types of refinance programs does FHA offer?
There are three main types of FHA Loan Refinance.
 FHA Rate/Term Refinance
The FHA Rate/Term Refinance is for borrowers who currently have a conventional fixed rate or ARM mortgage and wish to refinance into an FHA Mortgage. This program helps borrowers who wish to have a stable, FHA insured fixed rate mortgage.
Cash-Out Refinance
A Cash Out FHA Refinance Loan is perfect for the homeowner who wants to access the equity that they have built up in their home. This program is beneficial to homeowners whose property has increased in value since it was purchased.
Streamline Refinance
The FHA Streamline Refinance is designed to lower the interest rate on a current FHA mortgage or convert a current FHA adjustable rate mortgage into a fixed rate. A Streamline FHA Refinance can be performed quickly and easily. It requires much less hassle and paperwork than a normal refinance including no appraisal, no qualifying debt ratios and no income verification.
What kinds of loans does FHA offer for refinances?
Fixed rate loans - Most FHA loans are fixed-rate mortgages. In a fixed rate mortgage, your interest rate stays the same during the whole loan period, normally 30 years. The advantage of a fixed-rate mortgage is that you always know exactly how much your monthly payment will be, and you can plan for it.
Adjustable rate loans - Most first-time home buyers are a little stretched financially, so they want payments as low as possible at the beginning. With FHA's adjustable rate mortgage (ARM), the initial interest rate and monthly payments are low, but these may change during the life of the loan. FHA uses the 1-Year Constant Maturity Treasury Index (1 Yr CMT the most widely used index, to calculate the changes in interest rates. An index is a measure of interest rate changes that determine how much the interest rate on an ARM will change over time.
The maximum amount that the interest rate on your loan may increase or decrease in any one year is 1 or 2 percentage points, depending upon the type of ARM you choose. Over the life of the loan, the maximum interest rate change is 5 or 6 percentage points from the initial rate, again depending upon the type of ARM you choose. The advantage of an ARM is that you may be able to afford more house because your initial interest rate will be lower, as will your payment.
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