FHA Loan Mortgage Refinance

FHA Mortgage Loan Refinance

Current FHA Mortgage Loan Refinance Requirements differ greatly from those of Conventional Conforming Loans. Some of the distinct advantages of FHA Mortgage Loan Refinances over other loan types are:

Credit Flexibility
FHA Mortgage 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 Mortgage Loan Refinance.

Great Rates and Low Monthly Mortgage Insurance
A distinct advantage of an FHA Mortgage Loan Refinance, as compared to a conforming loan, is great interest rates and lower monthly mortgage insurance (MI). Depending on the program, standard FHA Mortgage Loan Refinance interest rates are usually better than a conforming 30-Year Fixed loan.

Smaller Home Equity Requirements
FHA Mortgage 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 Mortgage 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.

What types of refinance programs does FHA offer?

There are three main types of FHA Mortgage 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 Mortgage 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.

More information on FHA Refinance.

FHA Refinance Loan Programs

Rate/Term Refinance (No Cash Out)
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.

FHA Cash-Out Refinance
A FHA Cash Out 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.

FHA 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. An Streamline FHA Refinance Loan can be performed quickly and easily. It requires much less hassle and paperwork than a normal refinance including no credit check, no appraisal, no qualifying debt ratios and no income verification.

FHA Refinance Loan FAQ's

Are there any out of pocket expenses for an FHA Refinance Loan?
Generally, there are no out-of-pocket expenses incurred with an FHA Home Refinance, other than the appraisal fee. FHA Refinance Guidelines allow all other closing costs, including lender fees, to be included in the new loan amount, provided that the home will appraise for that amount.

Can I take cash out of my home with an FHA Refinance?
Yes, with an FHA Cash Out Refinance, the home owner obtains a new FHA Mortgage Refinance for more than the amount owed on their current mortgage; meaning the homeowner pays off the current mortgage and then has additional cash to use however they want. They maximum loan amount for an FHA Cash Out Refinance is 85% of the homes current appraised value.

What are the guidelines for an FHA Refinance Loan?
If the borrower wishes to take cash out of the property, then the maximum FHA Home Loan Refinance amount is 85% of the current appraised value. If the borrower does not take cash out then the maximum financing will be 97.75% of the appraised value of the home or the amount you are refinancing plus closing costs, whichever is lower.

Why should I consider refinancing into a FHA-insured mortgage?
FHA Refinance Loans do not come with prepayment penalties, have no teaser rates nor balloon payments. They are offered at market rate with terms up to 30 years and are fully amortized, meaning that you pay towards principal and interest every month.

What if I have a prepayment penalty and other refinancing costs and there isn’t enough equity in my home to refinance?
If you do not have sufficient equity in your home to add your prepayment penalty and/or other refinancing costs into your new FHA Mortgage Loan Refinance, then you should ask your lender to consider a second mortgage to pay the difference or a short payoff on your existing loan. Offering either of these options is at the discretion of the lender.

Does it matter that the value of my home is now less than what I still owe?
The mortgage lender considering the refinance will have to be willing to accept a short payoff on the existing loan OR to hold a second mortgage to make up the difference needed to pay off the existing mortgage and the home’s value.