FHA Discussion

Read the latest on FHA mortgage information

FHA Refinance Options and Requirements

FHA Refinance Options and Requirements

FHA Refinance

An FHA refinance is available even if your current mortgage is not an FHA loan and can be used to reduce the interest rate, lower the payment, or to cash out equity. 

We will explain all of the FHA refinance options and what the FHA refinance requirements are so you can make the best decision for yourself.

5 Reasons to apply for an FHA Refinance

When getting an FHA refinance, there must be a net tangible benefit for the loan to be approved. This essentially means that the refinance must benefit the consumer and not just the lender. The net tangible benefit rule is in place to prevent predatory lending.

If one of these 5 reasons apply to you, then it may make sense for you to refinance.

  1. Lower Interest Rate
  2. Lower Payment
  3. Cash out Equity
  4. Change the term of the mortgage
  5. Remove name from a mortgage

If you are not sure whether it makes sense for you to refinance, then contact us and we can help you to make the best decision possible.

1. Lower Interest Rate – In theory, you will spend less in total interest payments when refinancing your current mortgage to a lower interest rate. However, the costs associated with that refinance must be offset by the savings in interest payments.

2. Lower Payment – If you are simply trying to lower your monthly payments, then refinancing could make sense for you even if the interest rate is not going to be reduced. It is possible that you have a 15 year loan and would like to refinance to a 30 year fixed at a higher rate to lower your monthly payments. If you are consolidating debt, then the refinance could lower your total monthly debt payments in addition to your mortgage.

3. Cash Out Equity – There are many reasons to cash out equity from consolidating debt, starting a college fund, and remodeling your home with an FHA 203k rehab loan.

4. Change the Term of the Mortgage – If you have an adjustable rate and would like to go to a fixed rate, then an FHA refinance may make sense for you. You may also think about refinancing a 30 year fixed loan into a 15 year mortgage to shorten the loan term and save thousands in interest.

5. Remove a Name from a Mortgage – Many homeowner’s find themselves needing to remove a name from a mortgage because they initially used a co-signer or they are divorced and have to remove the ex-spouse. This type of refinance is permitted even if it does not make sense financially.

FHA Refinance Requirements

These are the basic requirements for an FHA refinance. However, the requirements may differ slightly for the streamline refinance.

  • You must be a US Citizen
  • The loan amount cannot exceed the FHA loan limit for your county
  • Your existing mortgage must be current with no more than one late payment in the past 12 months
  • Credit score of at least 500
  • You must meet all of the income and debt requirements *except FHA streamline refinance

4 Types of FHA Refinance Loans

Standard FHA Refinance

If you have an FHA loan now, you are more likely going to refinance with the FHA streamline product. However, if you do not have an FHA loan now, you can refinance that other mortgage program into an FHA loan.

A standard FHA refinance will require you to apply and provide the same documentation as you would for the purchase of the home. All of the income documentation will be required, your DTI will be evaluated and an appraisal is needed.

FHA Streamline Refinance

The FHA streamline refinance is for homeowners who currently have an FHA loan. This streamlined program requires no income verification or appraisal. It is a much easier and faster mortgage to get approved for.

We suggest reading our full article on the FHA Streamline Refinance to learn more about the program.

FHA Cash Out Refinance

The FHA cash out refinance will allow you to cash out up to 80% of the appraised value of the home. Unlike the FHA 203k rehab loan, you can use the funds for anything you want. This is a great program for debt consolidation or home remodeling if you have plenty of equity in the home. Read our article on the FHA cash out refinance for more information.

FHA 203k Refinance

The FHA 203k refinance is used to refinance the current mortgage and also borrow the funds needed to remodel the home. The cashed-out equity must only be used for remodeling purposes. This option should only be used if you currently do not have enough equity in your home for an FHA cash out refinance.

If you are interested in learning more about the FHA 203k refinance program, then read our full article here.

FHA Refinance Credit Score Requirement

The minimum credit core requirement per the HUD 400.1 FHA Guidelines is 500. However, most lenders do not accept credit scores that low and will require a much higher credit score.

If your credit scores are low and you cannot find a lender to help, then complete this loan scenario form and we can match you with a lender who can help with low credit.

Pros and Cons of an FHA Refinance

Pros

    • Lower interest rate
    • Lower payments
    • Savings in total interest payments
    • Potential to refinance with no out of pocket expenses

Cons

    • Restarting the mortgage for another 30 years
    • Paying the FHA mortgage insurance premium again

FHA Refinance – Frequently Asked Questions

How can I qualify for an FHA refinance?

To qualify for an FHA refinance, you would need to speak with a qualified FHA loan officer to make sure you meet the minimum qualifications. You can get pre approved for your FHA refinance by completing this pre approval form.

How soon can you refinance after you buy a house?

You are able to refinance soon after you purchase the home if you are going for a standard FHA refinance. However, for an FHA streamline refinance, you must wait 210 days must have made at least 6 mortgage payments.

How much are closing costs for an FHA refinance?

The FHA refinance closing costs will be 2-4% of the loan amount. However, for streamline refinances, the costs are much less. You may also roll some of the closing costs into the loan.

What are the FHA refinance rates?

The interest rates for an FHA refinance are very competitive and in most instances less than a conventional loan. With rates changing so often, we recommend speaking with a loan officer to get a rate quote here.

Share
Tweet
Pin
Flip
Share