- FHA Loan:
FHA mortgage loans are issued by federally qualified lenders and insured by the U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development.
FHA loans are an attractive option, especially for first-time homeowners:
FHA loans are designed for low to moderate income borrowers who are unable to make a large down payment. FHA loan limits vary based on a variety of housing types and the state and county in which the property is located.
FHA options to homeowners who are considering an FHA refinance mortgage:
FHA CASH-OUT REFINANCE
This refinancing option is especially beneficial to homeowners whose property has increased in market value since the home was purchased. A Cash Out refinance allows homeowners to refinance their existing mortgage by taking out another mortgage for more than they currently owe.
FHA STREAMLINE REFINANCE
This refinancing option is considered streamlined because it allows you to reduce the interest rate on your current home loan quickly and oftentimes without an appraisal. FHA Streamlined Refinance also cuts down on the amount of paperwork that must be completed by your lender saving you valuable time and money.
FHA Refinance Loan Basics
Are you thinking about refinancing your home loan with an FHA loan? There are several options available, and depending on the circumstances you may qualify for an FHA Streamline Refinance or an FHA Cash-Out refinance loan.
In general terms, a borrower with an existing FHA mortgage would be qualified to apply for an FHA streamline refinance loan, but what about those who have conventional or even VA loans? Are these eligible to be refinanced as an FHA mortgage? FHA loan rules on refinance loans are found in HUD 4155.1 Chapter Three Section A, which says:
“A refinance transaction is used to pay off an existing real estate debt with the proceeds of a new mortgage for borrower(s) with legal title, and on the same property.” Additionally, this section tells us, “The borrower is eligible to refinance the loan, as long as he/she has legal title, even if he/she was not originally on the loan.”
Under “Types of Refinances” FHA loan rules describe what can be done with an FHA refinance transaction:
“FHA insures several different types of refinance transactions, including
streamline refinances of existing FHA-insured mortgages made with or without appraisals no cash out refinances (rate and term) of conventional and FHA-insured mortgages, where all proceeds are used to pay existing liens and costs associated with the transactions, and cash out refinances.”
Some FHA refinance loans may require an appraisal. Some types, like the FHA Streamline/IRRLs, do not have an FHA-required appraisal in most cases but a lender is free to require one anyway. Streamline loans feature no FHA requirement to do so in most cases.
Terms of the loan (the maximum duration of the FHA refinance loan in months) are dependent on whether the loan is with/without an appraisal. According to Chapter Three:
“The maximum term of any refinance with an appraisal is 30 years. The maximum term of a streamline refinance without an appraisal is limited to the lesser of the remaining term of the existing mortgage, plus 12 years, or 30 years.”
Some want to know when applying for an appraisal-required FHA refinance loan, if they are permitted to use an existing appraisal on the property. Borrowers who purchased a home with a loan in the past six months and want to refinance may have a valid appraisal still valid on the property, but Chapter Three says:
“FHA appraisals on existing properties are valid for six months. However, appraisals cannot be reused during the six month validity period once the mortgage for which the appraisal was ordered has closed, or for a subsequent refinance, even if six months have not passed.”