The FHA Refinance Loan

You already own a home, so you're at least somewhat familiar with the mortgage process. If you've never refinanced through FHA you might think that it's more complicated because you're involved with a government agency. Well, you'll be pleasantly surprised to learn that an FHA Refinance Loan is really no different than than the process of refinancing with any other loan. Of course, you have many more protections and it will be easier to get qualified with FHA.

Did you know that you can refinance your current mortgage to an FHA Home Loan to lower your monthly payments, get cash out of your home, consolidate debt, obtain a fixed-rate mortgage, or even avoid foreclosure? Compare your FHA Refinance Loan options — it's easy!

What types of refinance programs does FHA offer?
There are three main types of FHA Refinance Loans.

FHASecure Refinance
The FHA Secure Refinance is for borrowers who currently have a conventional fixed rate or ARM mortgage and wish to refinance into an FHA Mortgage. The borrower may be delinquent on the current adjustable rate mortgage and still qualify.

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 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.

How much can I refinance?
The maximum amount for an FHA Refinance Loan is determined by:

Maximum Loan Amount
The maximum loan amount allowed for an FHA Refinance Loan varies from county to county. The highest maximum FHA Refinance Loan right now is $729,750. The lowest maximum amount available in any county is $271,050. To see what the limit is in the county in which you're interested, visit the following site https://entp.hud.gov/idapp/html/hicostlook.cfm. This site lists U.S. territories as well as states.

Maximum financing: Depending on the state where the property is located, the maximum FHA financing for an FHA Secure Refinance (No Cash-Out) or FHA Streamline Refinance (No Cash-Out) will be either 98.75% or 97.75% of the appraised value of the home or its selling price, whichever is lower. The maximum financing for an FHA Cash-Out Refinance in is 95%.

What factors determine if I am eligible for an FHA Refinance Loan?
To be eligible for an FHA Refinance Loan, 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. At least a 580 FICO credit score is very helpful to obtain an FHA approval. You must also have enough income to pay your housing costs plus all additional monthly debt (43% ratio). These ratios can be exceeded somewhat with compensating factors. See more on FHA Refinance Loan Requirements.

Can I get an FHA refinance loan 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 refinance loan. 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 are the advantages of an FHA Refinance Loan versus a Conventional Loan?
FHA Refinance Loans offer many benefits and protections that you won't find in other loans including:

FHA Refinance Loans are Credit Flexible
FHA Refinance Requirements 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 Refinance Loan. A FICO credit score of above 580 is extremely helpful in obtaining an approval.

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

FHA Refinance Loans Require a Less Home Equity
FHA Refinance Loans have as low as a 3% home equity requirement for refinance (5% for a cash-out refinance).

FHA Offers 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.

FHA Streamlined Refinance and Assumable Loans
One of the most important advantages of an FHA refinance loan is the ability for the loan to be assumed. This gives the buyer a significant advantage in a high interest rate market. Current FHA loans are also eligible for a streamline refinance, a program HUD offers that allows the borrower to easily refinance the loan to reduce their interest rate and lower their monthly payment.

FHA Refinance Programs

FHASecure
The FHASecure program is for borrowers who want to refinance their current fixed rate mortgage or ARM loan into a stable, FHA insured mortgage. You can be delinquent on your current ARM mortgage and still qualify for an FHA Secure mortgage loan. You may even be allowed to include the amount you are behind on your current ARM in your new loan.

Cash-Out Refinance
An 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 Questions & Answers

What are the guidelines for an FHA Refinance Loan?
If the borrower wishes to take cash out of the property, then the maximum financing amount is either 95% or 85% of the current appraised value, depending on the borrowers qualifications. If the borrower does not take cash out then the maximum financing will be either 98.75% or 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, 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?
Not to FHA, but the mortgage lender considering the refinance would 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.