November 21, 2013
When it’s time to refinance a home loan with an FHA loan, borrowers may wonder whether their situation qualifies for an FHA refinance, whether that’s a Streamline Refinance or a Cash-Out refinance loan.
Obviously an homeowner with an existing FHA mortgage wouldn’t have a problem getting a streamline refinance loan, but what about those who have conventional or even VA loans? What do FHA loan rules say it takes to qualify for an FHA refinance?
FHA loan rules on this subject are found in HUD 4155.1 Chapter Three Section A, under the heading, “General Information on Refinance Transactions”. It says in part:
“A refinance transaction is used to pay off an existing real estate debt with the proceeds of a new mortgage
- for borrower(s) with legal title, and
- on the same property.”
Additionally, “The borrower is eligible to refinance the loan, as long as he/she has legal title, even if he/she was not originally on the loan.”
Under “Types of Refinances” FHA loan rules describe what can be done with an FHA refinance transaction:
“FHA insures several different types of refinance transactions, including
- streamline refinances of existing FHA-insured mortgages made with or without appraisals
- no cash out refinances (rate and term) of conventional and FHA-insured mortgages, where all proceeds are used to pay existing liens and costs associated with the transactions, and
- cash out refinances.”
FHA refinance loans may, depending on the type of loan and other factors, require an appraisal. Some, such as FHA Streamline/IRRLs, do not have an FHA-required appraisal. The lender is free to require one anyway, but for Streamline loans there is no FHA requirement to do so. Terms of the loan–the maximum duration of the FHA refinance–are dependent on whether the loan is with/without an appraisal.
According to Chapter Three:
“The maximum term of any refinance with an appraisal is 30 years. The maximum term of a streamline refinance without an appraisal is limited to the lesser of the remaining term of the existing mortgage, plus 12 years, or 30 years.”
Can a borrower applying for an appraisal-required FHA refinance loan use the existing appraisal on a property? This wouldn’t apply for those who have owned the home for several years before applying to refinance, but those who got into a loan in the past six months and want to refinance may have a valid appraisal still good on the property. What do FHA loan rules say about this situation? Chapter Three states:
“FHA appraisals on existing properties are valid for six months. However, appraisals cannot be reused
• during the six month validity period once the mortgage for which the appraisal was ordered has closed, or
• for a subsequent refinance, even if six months have not passed.”
The bottom line in these cases? “A new appraisal is required for each refinance transaction requiring an appraisal” according to HUD 4155.1. For more information on getting started with an FHA loan, speak to a loan officer or contact the FHA directly for further assistance on the options and types of loans available.
Do you have questions about FHA loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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