December 7, 2012
Recent news headlines related to “fiscal cliff” include warnings of possible tax hikes, a loss of (or cap on) mortgage loan interest rate tax breaks and other bad-news type possibilities.
Those headlines make some homeowners seriously think about refinancing their FHA mortgages–getting into lower interest rates and/or lower payments to offset the higher costs of owning a home should the fiscal cliff issue enter a worst-case scenario.
While no homeowner should rush into such a decision, those who are ready to commit should know their FHA refinance loan options. According to the FHA official site, borrowers with FHA or conventional home loans have the following choices as described in HUD 4155.1 Chapter Three:
“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. ”
The different types of refinance loan options have a variety of loan term requirements. The FHA limits the maximum term of “any refinance with an appraisal” to 30 years, whereas the maximum term of an FHA streamline refinance with no appraisal, ” is limited to the lesser of the remaining term of the existing mortgage, plus 12 years, or 30 years.”
What about appraisals on the home? Some lenders may require one even when the FHA does not. Some borrowers want to know if they can use the original appraisal on their home for the new loan. FHA loan rules state, “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.”
To further clarify, the FHA official site states, “A new appraisal is required for each refinance transaction requiring an appraisal.”
Do you have questions about how FHA loans work? 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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