April 14, 2022
Are FHA credit requirements the same for refinance loans as they are for buying a new home? Many borrowers want to know if their credit scores, payment history, and other factors will be scrutinized as closely when refinancing.
FHA loan rules for refinances vary depending on the nature of the new loan. The rules that govern this area are found in HUD 4000.1, the FHA Single-Family Loan handbook, and lender standards may also apply.
The credit requirements we’re discussing here are FHA loan minimum standards. To know what a specific financial institution may require above and beyond these standards, you will need to talk to a participating FHA lender.
FHA Loan Credit Check Requirements For Cash-Out Refinance Loans
FHA loan rules in HUD 4000.1 state that cash-out and the no cash-out equivalent refinance loan does require a new credit check (and appraisal) as a condition of the loan. Credit check standards for these loans are similar to new purchase loans.
That means that in addition to FHA FICO score minimums (580 and above for maximum financing), you will also need to learn what your chosen FHA lender’s FICO score standards are; they may not be identical to the FHA loan standard; they can and often are higher.
FICO scores aren’t the only criteria; borrowers who apply for cash-out refinance loans should come to the process with at least 12 consecutive months of on-time payments for best results.
Applying for cash-out refinance loans or their no cash-out equivalents with anything less could jeopardize your chances at loan approval.
FHA-to-FHA cash-out loans, Conventional-to-FHA, or any other combination of cash-out refi loans will be affected by these requirements.
FHA Loan Credit Check Requirements For FHA-To-FHA Streamline Refinance Loans
FHA Streamline refinances are an option for those with existing FHA mortgage loans who want to refinance with no cash back, with the result of the loan including a “tangible benefit” for the borrower.
This benefit can be in the form of a lower interest rate or monthly payment, or getting out of an Adjustable Rate Mortgage into a fixed rate FHA loan.
FHA Streamline Refi loans have no FHA requirements for a new credit check. Your participating lender has the option to process your refi loan using the original information you submitted when you applied for the new purchase FHA mortgage.
However, lender standards may still require a new credit check. That is an issue you will need to discuss with your lender.
General FHA Loan Issues For Refinance Loans
When refinancing, you should expect similar lender standards for credit scores where applicable, you should expect the lender to determine whether you can afford the new loan, and you should be prepared to pay for expenses associated with the loan such as any required new appraisal, corrections required as a result of the appraisal (where applicable), etc.
You can also expect to be offered options such as the FHA Energy Efficient Mortgage, which can add funds to your loan for approved energy-saving upgrades to the home.
You may be able to finance some expenses of the loan, but you may be required to pay certain expenses in cash. If you seek FHA Cash-Out Refinancing, talk to your lender about how financing or not financing these expenses will affect the amount of cash back to you at closing time.
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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