Can I Refinance My Conventional Loan to FHA?
FHA Refinancing: Your Options
The FHA loan handbook, HUD 4000.1, lists a number of refinance options you can use:
- Cash-out refinances (designed to let you take equity out of your home in cash)
- No cash-out refinances such as rate-and-term refinance, and FHA simple refinances
- FHA refinances for rehabilitation or repair such as the FHA 203(k) rehabilitation loan
You can financially qualify to refinance a conventional mortgage loan with an FHA loan. FHA loan guidelines say you can have credit scores in the 580 range or better to qualify for competitive rates and terms.
But lender standards will also apply and you may find that a cash-out refinance loan has stricter rules.
This is why we give advice about preparing as early as possible for your refinance. Review your credit reports, examine your FICO scores, and work to maintain a minimum of 12 months of on-time payments on all financial obligations. Ahead of any loan application such as a refinance or purchase loan, you should also avoid applying for new lines of credit.
It’s true that you aren’t required to make a down payment on an FHA refinance loan, but the Loan-to-Value ratio of your refi loan may vary depending on the type of refinancing you need.
FHA Refinance Loans: Occupancy Required
FHA refinance loans require occupancy and the duration of that occupancy may also be a factor depending on the loan. One good example? The FHA loan rules governing FHA cash-out refinances. HUD 4000.1 says:
"The Property securing the cash-out refinance must have been owned and occupied by the Borrower as their Principal Residence for the 12 months prior to the date of case number assignment."
There are certain exceptions that could apply. Have you inherited a property and you need to refinance it with an FHA loan?
"In the case of inheritance, a Borrower is not required to occupy the Property for a minimum period of time before applying for a cash-out refinance, provided the Borrower has not treated the subject Property as an Investment Property at any point since inheritance of the Property."
FHA loan rules in this section add that if an FHA borrower HAS used the inherited home as an investment property, HUD 4000.1 says, "...the Borrower is not eligible for a cash-out refinance until the Borrower has occupied the Property as a Principal Residence for at least 12 months."
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