FHA Loan Articles

What Should I Know About the Terms for FHA Refinancing?

If you want to refinance your home mortgage using an FHA refinancing loan, there are several things to know before you begin. FHA refinancing is not the same as the FHA HOPE for Homeowners program, which is designed to protect people from going into default or foreclosure. FHA refinancing loans can be taken out to lower your monthly payments, avoid going into default or foreclosure, and even help you pay for home improvements.

There are different types of FHA refinance loans, each with specific terms and requirements. These include:

• Cash-out FHA refinancing up to 85% of the home’s appraised value


• Cash-out FHA refinancing for up to 95% of the appraised value


• No cash-out FHA refinancing


• Streamline FHA refinancing

In the case of both cash-out FHA refinance loan options, you’re required to own the home for at least a year before applying.

HOW MUCH WILL I GET WITH AN FHA REFINANCE LOAN?

Figuring out your lending limits for cash-out FHA refinancing loans is simple once you determine what 85% or 95% of your home’s appraised value is. For no cash-out refinancing loans, the calculations become a bit more complex.

For “non-streamlined” FHA refinancing, the loan amount may be determined by one or two calculations:

• A calculation made with the home’s maximum loan-to-value percentage multiplied by the home’s appraised value.


• A second calculation involves the total of the original lien, any second mortgages or “junior liens” over one year old, plus closing costs and other expenses. This calculation is fairly complex and you may need help from your loan officer to understand all the factors that go into it.

The maximum amount of your loan for non-streamlined FHA refinancing will be determined by the lesser of these two calculations.

FHA Streamline refinancing loans are only for those who have existing FHA loans. For Streamline FHA refinancing loans, there is no cash given to the buyer, but the calculations of the loan amounts are similar to non-streamlined FHA refinancing. There are two Streamline refinancing loans. One requires a new appraisal of the home so that closing costs can be built into the cost of the loan rather than having the buyer pay those costs out of pocket. If the home has enough equity to cover the additional expense, the buyer can include the closing costs into the loan amount.

The no-appraisal FHA Streamline loan is limited to the amount of the original FHA home loan only. The buyer must make other arrangements to cover the closing costs rather than building them into the terms of the new FHA refinancing loan.

OTHER TERMS AND CONDITIONS

For non-Streamline FHA refinancing, you may be required to pre-qualify in the same way you did for your original FHA home loan. Streamline FHA refinancing does not require a new credit check in most cases unless your bank has a policy requiring one.

In many cases you are required to be current on your mortgage payments. For 95% cash-out refinancing you are also required to have a record of on-time payments for the previous year.

One area that confuses some homeowners seeking FHA refinancing--the down payment issue. There is a minimum down payment requirement of 3.5% for all FHA mortgages issued after 1 January 2009. However, recent guidelines issued from the FHA states this requirement does not apply to FHA refinance mortgages --there is no down payment required to refinance, but you will have to pay closing costs.

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