Refinancing with FHA Loans

Homeowners considering refinancing of their properties may qualify for an FHA streamlined refinance loan, cash-out refinance loan, or a no-cash refinance loan. According to FHA loan rules, applicants for a new mortgage must meet the eligibility criteria, not be the same party as the original loan, and reside on the same property listed in the refinance application. There are three FHA insured refinance transactions.

Streamlined Refinance

Made with or without appraisal, an FHA streamlined refinance enables borrower to reduce the interest rate on an existing property loan. Qualification for a streamlined refinance package requires a current FHA loan in good standing, and the requested refinancing must result in a lower monthly interest payment. The loan targets reduction of monthly expenses, but there is no option to receive cash back. The streamlined refinance loan application process is typically expedient, and covers assessment of an applicant’s credit history, debt ratio status, and employment.

Cash-Out Refinance

The FHA cash-out refinance option offers homeowners the opportunity to derive the most benefit from a second mortgage. The cash-out refinance loan is good for applicants looking to change monthly payments after a significant amount of equity has already been built-up in a home. Property collateral can be applied to the request for a loan worth more than the total sum of the existing mortgage. Properties purchased more than one year before refinancing application, can refinance an existing FHA loan for up to 85% of the property’s appraisal, plus closing costs. Cost of closing varies according to state.

No Cash-Out Refinance

The FHA no cash-out refinance loan can be applied to an existing FHA mortgage. This includes no cash-out refinances used to pay off property liens and associated transaction costs. According to United States Department of Housing and Urban Development rules, an appraisal is required for consideration of an FHA no cash-out refinance loan application. Once funded, outstanding debts related to title are covered. The FHA does not offer additional finance for upgrade of the property.

The terms and conditions to an FHA refinancing loan vary according to whether a loan was sought without or without appraisal. The duration of FHA refinance loans is restricted to a maximum term of 30 years, with an appraisal. For FHA streamlined refinance recipients without an appraisal prior to loan, the pay back term is limited to the less than the original loan or remaining term of an existing mortgage, plus 12 to 30 years depending on the agreement.

For homeowners interested in applying to the FHA for a refinancing loan, it is important to find out about qualifying for an exemption from appraisal. The FHA refinancing division offers information about the rules to use of an existing appraisal on a property in application for a loan. Restrictions apply on refinancing applications where six months has not passed since original loan financing or where an appraisal that has exceeded the six month validity requirement is part of the consideration.

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Posted on May 18, 2023