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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About FHA Refinance Loan in 2021
Right from 1934 the Federal Housing Administration (FHA) has been helping people become successful homeowners.
The Federal Government insures the FHA mortgage so that single-family mortgages with flexible credit qualifying requirements and loan terms such as low-down-payment, low-interest rates, and low closing costs can be provided by the lenders.
FHA mortgages are very popular with homeowners and first-time homebuyers.
There are great FHA refinancing options also available which is offered by the FHA, it doesn’t really matter whether you’re an existing FHA borrower or not.
If a refinance is in your mind then, an FHA refinance might be right for you. Listed below are a few FHA refinance options and how you can qualify for each.
FHA Streamline Refinance
When an existing FHA loan borrower is trying to capitalize on low rates by refinancing quickly and efficiently, earning the name “streamline” it is called the FHA streamline refinance.
This option is very loveable by borrowers because it has reduced credit and underwriting requirements, it does not require income or employment verification, and there is no appraisal needed.
While the closing costs are not included in the loan amount they may be offset by lender credits that are offered with this popular program.
The Eligibility Requirements of an FHA Streamline Refinance:
- You will be refinancing your primary residence.
- For the last six months, you have made your mortgage payments on time.
- It is not less than six months since the first payment due date of your current FHA loan.
- Since the closing date of your current FHA loan, you have crossed at least 210 days.
- Your refinance must result in a demonstrated financial net tangible benefit (NTB) to you, like a lower payment or shorter loan term.
FHA Simple Refinance
A Simple Refinance is a rate and term refinance of an existing FHA mortgage and it allows you to include the closing costs in the Loan Amount.
With Simple Refinance you require credit qualification, full documentation of income and employment, and a home appraisal.
The Benefits of the Program Include:
- You can remove co-borrowers from your original mortgage.
- Net benefit requirements are not required to be met for a new loan.
- 75% should be the maximum loan-to-value (LTV) ratio.
- Reduced Upfront Mortgage Insurance Premium from unused UFMIP credit from previous FHA Mortgage with less than 3 years seasoning.
- For existing FHA Mortgage, you do not require any mortgage seasoning (we are comparing it to six months seasoning required by the Streamline Refinance).
FHA Rate & Term Refinance
A “no cash-out” refinance of an FHA mortgage is called Rate and Term Refinance.
Here all proceeds are used to pay existing mortgage liens on the property being refinanced and costs associated with the new refinance transaction. a title holder’s equity can be bought using this type of refinancing (for example, a divorce) or to pay off a recorded land contract.
The Benefits and Requirements of the Program Include:
- You can remove the co-borrowers from the original mortgage.
- Net tangible benefit requirements are not needed.
- 75% is the maximum loan-to-value (LTV) ratio allowed.
- The other liens that are being paid with proceeds of refinancing should be at least one year old.
- The Upfront Mortgage Insurance Premium from unused UFMIP credit is reduced from previous FHA Mortgage with less than 3 years seasoning.
For existing FHA Mortgage, there are no mortgage seasoning requirements (this is being compared to six months seasoning required by the Streamline Refinance).
Cash-Out for New and Existing FHA Borrowers
For both existing FHA loan borrowers and conventional loan borrowers who are looking to cash-out into an FHA loan an FHA cash-out refinance is an option.
Here, your existing loan can be refinanced by you and you can also access the remaining equity in the form of cash. This type of refinancing has more requirements.
An FHA Cash-Out Refinance Eligibility Requirements Include:
- The property should be your primary residence and it should be owner-occupied for at least 12 months before the application date.
- In the last 12 months no history of late payments.
- 80% of maximum loan-to-value (LTV) ratio, or cash-out with as little as 20% equity.
- 43% is the maximum debt-to-income (DTI) ratio to qualify.
- An upfront mortgage insurance premium to be paid, and then followed by a monthly insurance payment.
- A completed home appraisal is required.
- For the mortgage liens that are being paid off a Six-month seasoning is required.
An FHA cash-out refinances could be the answer to you if you’re wanting to get your hands on cash to go toward things like credit card debt, college tuition, home improvement projects, and more.
Refinancing an FHA Loan into a Conventional Loan
If you’re an existing FHA borrower, you won’t have to limit yourself to only refinancing into another FHA loan.
As your mortgage is paid down, and the value of your home has risen, you may have enough equity to refinance out of an FHA loan and into a conventional loan, like a fixed-rate or adjustable-rate mortgage (ARM).
Though the rates of a conventional loan are slightly higher, your mortgage insurance payments may be much less than those of an FHA refinance loan.
Also, in rare cases, FHA loan insurance is permanent, and it is not always the case with a conventional loan.
Refinancing a Conventional Loan into an FHA Loan
Refinancing a conventional loan into an FHA loan is a great option for those homeowners who would like to refi, but don’t have a stellar credit score to qualify for a conventional refinance.
Even if your rate could be lower with an FHA refinance loan, but you will have to pay mortgage insurance, potentially for the life of the loan with an FHA loan
Conclusion
Now that you are well equipped with some of the basic guidelines of an FHA refinance and what it can offer you, the work for you now is to find the refinance option that is right for you and fits your requirement.
Get in touch with a trusted mortgage expert to answer your questions and learn more.
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