July 19, 2017
Who can refinance an FHA loan? There are rules and requirements for refinancing an FHA mortgage loan that include prohibitions to ensure fair lending, but also restrictions on who may refinance depending on the status of the applicant as a borrower or co-borrower on the original loan.
The rules that govern who can refinance an FHA loan, and how it may be done, are found in the FHA handbook, HUD 4000.1. There, we learn:
“A party who has a financial interest in the mortgage transaction, such as the seller, builder or real estate agent, may not be a co-Borrower or a Cosigner. Exceptions may be granted when the party with the financial interest is a Family Member.” Furthermore:
“To be eligible, all occupying and non-occupying Borrowers and co-Borrowers must take title to the Property in their own name or a Living Trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments.”
When it comes to community property states, HUD 4000.1 adds, “…the Borrower’s spouse is not required to be a Borrower or a Cosigner. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under State Law.”
Cosigners to an FHA refinance loan are also subject to rules in HUD 4000.1. “Cosigners are liable for the debt and therefore, must sign the Note. Cosigners do not hold an ownership interest in the subject Property and therefore, do not sign the security instrument.”
The co-signer issue also includes a U.S. residency requirement. “Non-occupying co-Borrowers or Cosigners must either be United States (U.S.) citizens or have a Principal Residence in the U.S.”
When it comes to the type of refinance loan options open to the borrower, FHA loan rules state, “FHA-to-FHA refinances may be used with any refinance type.”
“The Mortgagee must obtain a Refinance Authorization Number from FHA Connection (FHAC) for all FHA-to-FHA refinances. FHA will not issue a new case number for any FHA to FHA Refinance where the existing Mortgage to be paid off has a repair or rehabilitation escrow account that the Escrow Closeout Certification has not been completed in FHAC.”
And finally, FHA loan rules also include a specific definition of who may refinance the FHA mortgage. “At least one Borrower on the refinancing Mortgage must hold title to the Property being refinanced prior to case number assignment.”
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.
Browse by Date: