August 4, 2017
Why should I refinance with an FHA mortgage loan? Many ask themselves this, and oftentimes the answer is good news; lower interest rates, the ability to refinance into a fixed rate loan from an adjustable rate mortgage, or lower mortgage payments. But there are also some FHA refi options for those who need to recover from natural disasters, or who want to rehab their property.
Typical FHA Refinance Loan Options
Borrowers with existing FHA mortgages have a full range of options including FHA Cash-out Refinance loans, FHA Streamline Refinance loans which can help with lower interest rates and mortgage payments, FHA no cash-out loans, and even reverse mortgages (for qualified borrowers aged 62 or older).
Those with non-FHA mortgages may also refinance using cash-out or FHA no cash-out, options. You don’t need an existing FHA mortgage in order to apply for an FHA reverse mortgage (again, for qualified borrowers aged 62 or older), and you aren’t required to stay with your existing lender to refinance non-FHA to FHA.
Other FHA Refinance Loan Options
Does your home need rehab, renovation, or repair work? The FHA 203(k) rehab mortgage permits borrowers to apply for purchase or refinance versions of this loan, depending on circumstances. There’s a Limited 203(k) which features smaller amounts for certain types of work. The Limited version features no minimum loan amount but does feature a ceiling of $35,000. These FHA refinance loans are for limited repair work and not intended for “structural repairs”.
The “Standard” FHA 203(k) offers money for extensive repairs, has a minimum borrowing requirement ($5,000) and the use of a 203(k) consultant is required. These rehab loans can be used in any circumstances, unlike the similar FHA 203(h) loan which is used for those in Federally declared disaster areas. The 203(h) is also available as a refinance loan, and FHA 203(h) loans can be used in conjunction with FHA 203(k) rehab loans.
FHA Refinance Loan Requirements
Any time an FHA mortgage loan or refinance loan features cash back to the borrower (such as a cash-out refinance loan), there will be a new credit check and appraisal required. Borrowers who are doing FHA-to-FHA refinance loans with an FHA Streamline will learn that there’s no FHA required credit check or appraisal in most cases, but your lender may require one or both depending on circumstances (and is free to do so).
FHA loans require a minimum FICO score of 580 or above for maximum financing. Your chosen financial institution may (and often does) have higher standards, which is permitted under FHA loan rules (See the FHA loan handbook, HUD 4000.1 for more information on that issue). Your repayment history on all financial obligations for the last 12 months will be reviewed and it’s best to come to the process with no lates or missed payments in that 12 month time span.
The lender will generally require at least one party currently obligated on the mortgage to sign on the new loan. In cases where there is an FHA loan assumption, talk to your loan officer about how to proceed with a refinance loan transaction following the assumption. Lender standards vary and state law may also factor into your transaction in such cases.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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