June 23, 2017
What is an FHA refinance loan? Do you know all your refinance options under the FHA loan program? There’s more than one way to refinance a home and the refi option you choose depends a lot on your financial needs and goals. You may find that refinancing into an FHA mortgage brings a lower interest rate, lower monthly payments, or cash back to you depending on the transaction.
FHA Refinance Loan Basics
FHA refinance loans are loans for those who own an existing property and want to take out a new loan that is secured by that property. Whether you have a home purchased with a conventional mortgage, VA, FHA, USDA, or other non-FHA mortgage, your FHA refinance loan options will include cash-back-to-the-borrower type refinance loans or no-cash-out FHA refinancing.
Refinance loans pay off whatever is left of the original mortgage. When you refinance with an FHA mortgage, you have the option to include certain costs of the loan into the new mortgage. You also have the option to add energy efficient upgrades to the property under the FHA EEM (Energy Efficient Mortgage) loan program. Add-ons to your base loan amount can increase your monthly mortgage payments, so it is very important to consider that factor when choosing your FHA refi loan.
FHA Refinance Loans: Cash-Out
You don’t have to choose an FHA cash-out refinance loan, and many don’t. Some borrowers are interested in taking advantage of the equity built up in the property and using that cash, and FHA cash out refinancing can help you do just that. FHA cash out refi loans require a new credit check and appraisal, and the amount of the cash back to you depends on how much of the loan money was used to pay off the original mortgage loan balance, loan fees, etc.
FHA cash-out refinancing can be used for any qualifying transaction regardless of whether it’s FHA, VA, USDA, or conventional…any existing loan can potentially be refinanced with a new FHA mortgage.
FHA Streamline Refinancing
FHA streamline refinance loans are intended for existing FHA loans only. There is a requirement that the borrower be given some benefit through these kinds of loans, in the form of a lower interest rate, monthly payment, etc.
Streamline loans don’t allow cash back to the borrower (except for legitimate refunds generally around $500 or less) but they also have no FHA-required credit check or appraisal. Whether your lender decides to require one or both is up to the financial institution you’re working with. Streamline loans can help borrowers get out of adjustable rate mortgages and into fixed rate loans. In those cases the lower interest rate or lower payment benefits aren’t required because moving into the new fixed-rate loan is viewed as the tangible benefit.
Refinance Loans: Fixed Rate and Adjustable Rate Mortgages
FHA refinance loans can be either fixed or adjustable rate mortgages (ARM). There are guidelines lenders are required to follow for refinancing out of an ARM loan into another ARM loan, and there are also requirements when refinancing out of a fixed rate and into an ARM. Not all participating FHA lenders will offer the same options, so it’s best to ask for the type of refinancing you seek as early as possible to determine what your chosen FHA lender is willing to do.
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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