Refinance Your Home
Home owners with or without FHA home loan may us the FHA Refinance Loan, the cash out FHA refinance loan, or the FHA Streamline refinance program to consolidate their bills or take cash out of their property or just lower their interest rate and payments.
FHA Refinancing Loan
FHA Refinance loans are used to refinance any non FHA loan to an FHA loans. If a borrower has a conventional mortgage they may be able to use the FHA refinance loan to refinance up to a LTV of 97.75% provide that they are not getting any money at closing or paying off anything other than the existing mortgage(s).
Existing Debt: Add together the amount of the existing first lien, any purchase money second mortgage, any junior liens over 12 months old, closing costs, prepaid expenses, borrower paid repairs required by the appraisal, discount points, and then subtract any refund of UFMIP.
If any portion of the funds of an equity line of credit in excess of $1000 was advanced within the past 12 months and was for purposes other than repairs and rehabilitation of the property, the line of credit is not eligible for inclusion in the new mortgage.
The amount of the existing first mortgage may include the interest charged by the servicing lender when the payoff will not likely be received on the first day of the month (as is typically assessed on FHA-insured mortgages). The amount also may include any prepayment penalties assessed on a conventional mortgage.
In determining the existing debt as part of the mortgage amount calculation, the mortgagee may include accrued late charges and escrow shortages.
Prepaid expenses may include the per diem interest to the end of the month on the new loan, hazard insurance premium deposits, monthly mortgage insurance premiums, and any real estate tax deposits needed to establish the escrow account regardless whether the mortgagee refinancing the existing loan is also the servicing lender for that mortgage.
FHA Cash-Out Refinances
Cash-out FHA refinance loans on properties owned more than one year prior to the FHA refinance are permitted on owner occupied principal residences only, and are limited to 85% of the appraised value up to a base loan amount.
A cash-out FHA refinance loan is when a borrower refinances their current mortgage for more than they owe in order to pull out the built up equity that has accrued in the home. The amount a home owner can borrower is limited by the value of the property compared to the loan amount (otherwise known as the loan-to-value or LTV).
The following are basic requirements of a cash-out FHA refinance home loan:
- Borrowers who are delinquent or in arrears under the terms and conditions of their current mortgage(s) are not eligible for a cash-out FHA refinance.
- The subject property must have been owned by the borrower as his or her principal residence for at least 12 months preceding the date of the loan application. If the borrower has not owned the property for a minimum of 12 months, the FHA refinanced insured new mortgage is capped at 85 percent LTV. In such cases, the FHA Home loans amount must be calculated using the lesser of the appraised value or the original sales price of the property multiplied by 85%.
- If said property is encumbered by a mortgage, the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months, i.e., no payment may have been more than 30 days late and is current for the month due.
- Applies to owner occupied properties only.
- The property that is security for the FHA refinance mortgage must be a 1 to 4 unit dwelling.
- Loan amounts may not exceed the maximum loan limits for the area. Subordinate financing may remain in place, but subordinate to the FHA refinanced insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the homeowner qualifies for making scheduled payments on all liens.
- All borrowers must credit qualify.
- Any co-borrower or co-signer being added to the note must be an occupant of the property. Non-occupant owners may not be added in order to meet FHA's credit underwriting guidelines for the mortgage.
- If a homeowner is pursuing a cash-out FHA refinance the loan balance exclusive of FHA's up front mortgage insurance premium the loan-to-value may not exceed 85 percent of the appraiser's estimate of value.
FHA Streamline Refinance Loans
Home owners with FHA loans may use the FHA streamline refinance loan program in one of several ways. The first is the simplest and least costly. It is called a FHA Streamline loan without an appraisal.
FHA streamlined loans emerged onto the mortgage scene in the early 1980's. Since then, thousands of FHA homeowners have utilized this program to lower their interest rate with fewer costs and relative ease.
A FHA streamlined refinance loan refers only to the amount of documentation and underwriting that is conducted on a loan file by the mortgage company. Mortgage companies may offer FHA streamline's at "no cost" (actually no out-of-pocket expenses to the borrower) by charging a higher interest rate on the new loan. Other companies may offer a streamline refinance that wrap the costs into the new mortgage amount. Unfortunately, there must be sufficient equity in the property. Before deciding which option best fits your needs, it is important to weigh not only the costs but also the long term impact that a higher rate or a higher mortgage payment will have.
An FHA streamline refinance loan with or without an appraisal, do not require credit underwriting. Credit is run and analyzed. While HUD does not disqualify a borrower for prior late mortgage payments, individual lender may have restrictions. New individuals may be added to title on a streamline refinance without credit review. Deleting individuals from title on a streamline refinance may require qualification (certain exceptions may apply).
The following are basic requirements of an FHA streamlined refinance:
Borrowers who refinance their delinquent non-FHA ARM loan into FHA Secure and subsequently wish to refinance to another FHA-insured mortgage must use a refinance product that requires full qualifying, e.g., a rate and term refinance. Once the FHA-to-FHA full qualifying refinance is insured, these borrowers will be able to take advantage of FHA's Streamline Refinance program.
- The mortgage to be refinanced must already be FHA insured
- The mortgage to be refinanced should be current (not delinquent)
- The refinance must lower the principal and interest payment of the previous mortgage payment
- The borrower may not receive cash from loan proceeds in excess of $500.
- Any subordinate financing may remain in place as long as it is subordinated on title.
- The term of the new mortgage must be the lesser of 30 years or the unexpired term of the mortgage plus 12 years. A borrower cannot refinance from a 15 year loan to a 30 year loan.
- An appraisal is not required unless the closing costs are wrapped into the loan. Streamline refinances without an appraisal are limited to the unpaid principal balance, minus any refund credit of the mortgage insurance premium (MIP), plus the new upfront MIP if it is to be financed in the mortgage.
- No termite report is required
- The borrower cannot be late, delinquent, or in default of any federal debt.
