FHA Refinancing and Ownership Issues

July 6, 2011

One of the most frequently asked questions about refinancing is connected ownership of the home and who is listed on the FHA loan. If a borrower applies for an FHA insured loan, had the loan assumed, added someone to the title, or otherwise brought another person into property ownership--without adding them to the original FHA loan--can that person apply for FHA refinancing even though they aren't listed on the loan paperwork?

According to the FHA, the rules allow anyone with ownership of the property (legal title) may apply for FHA refinancing. According to the rules, the borrower does not have to be obligated on an FHA note to apply for FHA refinancing.

But the status of the borrower would affect the type of FHA refinancing applied for--a borrower with an FHA mortgage may be eligible for FHA streamline refinancing such as an Interest Rate Reduction Refinancing Loan.

A borrower who did not have a previous FHA loan would have to apply for credit-qualifying FHA refinance loans instead of a streamline loan--the FHA would not allow a streamline loan in this case because there's no prior loan history or paperwork on file with the FHA.

Someone with legal title to the property but not named on the original FHA home loan paperwork will be required to meet typical FHA standards for a new loan-credit history must be submitted and other customary loan application paperwork. It's not a case of being penalized for not taking out an FHA loan in the first place, but rather a requirement that the borrower apply for a new line of credit.

The key in all of this is having legal title to the property and being able to show documentation that proves it. Applying for any FHA loan requires other types of proof for income, employment and current debt; proof of title is no different.