April 11, 2019
Buying your first home with an FHA loan means, for some borrowers, the need to think about a first-time refinance later down the line. What do first-time home owners need to know about refinance loans and their FHA loan options?
Decide Ahead Of Time On Your Goals For The Refinance Loan
FHA refinance loans can help you do a number of things depending on the need for the loan. For example, you may wish to do repairs or upgrades in the home, and for that purpose an FHA 203(k) rehabilitation loan is an excellent option to pursue.
Rehab loans allow you to simultaneously refinance and repair or upgrade the house with approved projects, but if you are looking for cash back to use in any way you see fit, the rehab loan won’t work for you. Instead, you would need an FHA Cash-out Refinance loan that allows cash back to the borrower for any purpose.
Timing Of Your FHA Refinance Loan Application Is Important
You cannot, under FHA loan rules, refinance a loan that has not met the minimum “seasoning requirement” which will vary depending on the kind of refinance loan you need. Cash-out refinance loans may require longer wait times than no-cash-out refinances.
Payment History Is Crucial
Don’t apply for a refinance loan if you have late or missed mortgage payments on your record in six to 12 months leading up to the application depending on the nature of your refinance loan. Consider what the FHA loan handbook, HUD 40001., says about late and missed payments for cash-out refinance loans:
“The Mortgagee must document that the Borrower has made all payments for all their Mortgages within the month due for the previous 12 months or since the Borrower obtained the Mortgages, whichever is less. Additionally, the payments for all Mortgages secured by the subject Property must have been paid within the month due for the month prior to mortgage Disbursement. “
As you can see, the payment record is just as important for refinancing as it is for new purchase loans. Your lender needs to justify the loan and the credit risk associated with it; missed and late mortgage loan payments jeopardize the lender’s ability to do that.
Ask a loan officer about your FHA refinance loan options based on your financial needs and goals for the loan; there are many different types of refinance options open to you even if you do not have an existing FHA home loan.
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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