FHA Refinance Loans for Homeowners
Learn About the FHA Cash-Out Refi and Other Programs
With home values continuing to rise, homeowners have gained more equity in recent years. This may allow you to refinance your home and eliminate existing monthly mortgage insurance premiums. You may also use that equity to pay off high interest credit debt or use the cash for home repairs.
Homeowners enjoy the benefits of investing in their property year after year. For some, there comes a time when that investment can come in handy. Refinancing with an FHA loan can prove to be an effective way to put that equity to work. Keep in mind that FHA refinancing is only available to homeowners who are currently using their home as their principal residence now.
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. To be eligible for an FHA cash-out refinance, borrowers will need at least 20 percent equity in the property based on a new appraisal.
A Cash-Out Refinance can be a smart option for many homeowners. Whether it’s for home improvement, college tuition, debt consolidation (to pay off other high interest rate loans), student loan debt, or home remodeling, you can access money that you have in an illiquid asset.
- Credit Score Guidelines
Applicants must have a minimum credit score of 580 to qualify for an FHA cash-out refinance. - Debt-to-Income Ratio Guidelines
The FHA has guidelines regarding an applicant's debt-to-income ratio in order to keep people from entering into mortgage agreements that they cannot afford. - Maximum Loan-to-Value Guidelines
FHA Cash-Out Refinance loans have a maximum loan-to-value of 80 percent of the home's current value. - Payment History Requirements
Documentation is required to prove that the borrower has made all the monthly payments for the previous 12 months.
- Ready to Apply for an FHA Cash-Out Refinance Loan?
- FHA Refinance Cash-Out vs. Interest Rate Reduction
- FHA Mortgage Relief: Do You Need Cash-Out Refinancing?
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 Streamline Refinance also cuts down on the amount of paperwork that must be completed by your lender saving you valuable time and money.
- Your Current Mortgage Must Already Be FHA-Insured
While refinancing from a conventional loan to one backed by the FHA is possible, the Streamline option is only available to borrowers with an existing FHA loan. - The Mortgage Must Be Current
This means that you have not missed any payments. You must have made at least 6 monthly payments and have had your existing mortgage for a minimum of 210 days before you can apply for the Streamline Refinance option. - There Must Be a Net Tangible Benefit
The FHA actually requires that there be some advantage for the borrower if they go ahead with a Streamline Refinance.
- FHA Streamline Refinance Loans: Expert Advice
- Who Needs An FHA Streamline Refinance Loan?
- Streamline Refinance Loans and Cash-Out Refinancing
FHA Simple Refinance
The FHA Simple Refinance allows homeowners to go from their current FHA Loan into a new one, whether it's a fixed-rate loan or an ARM. This refinance is the most straightforward, and there is no option for cash-out. Lenders will require a credit qualification, income, and assets to ensure the borrower meets the loan requirements.
Homeowners should think about several factors while considering the benefits of refinancing their mortgages. Below are some of the most common goals borrowers have when moving forward with their refinance options.
- Lower Monthly Payments
Refinancing your home gives you the opportunity to get a lower interest rate on your mortgage, which means smaller monthly payments. - Switch to a Fixed Rate Loan
Even by switching from an ARM to fixed rate mortgage, you could avoid higher monthly payments and will have a set amount to pay every month. - Earn Cash on Your Home Equity
It allows you to borrow cash against your home equity in the case of large upcoming expenses. By liquidating this equity you can get cash-in-hand.
- FHA Simple Refinance and the Rate-And-Term Refi
- What You Need To Know About Refinance Mortgage Rates
- Basic Eligibility Rules for FHA Mortgages
FHA Rehab Mortgages
Many buyers decide to purchase a home that is significantly older, and not in the best condition. The FHA 203(k) Rehabilitation Loan enables borrowers to finance the purchase or refinance of a home, along with its renovation or "rehabilitation" of the property. HUD allows Section 203(k) financing to be used for:
- Structural alterations and reconstruction
- Modernization and improvements to the home's function
- Elimination of health and safety hazards
- Changes that improve appearance and eliminate obsolescence
- Reconditioning or replacing plumbing; installing a well and/or septic system
- Adding or replacing roofing, gutters, and downspouts
- Adding or replacing floors and/or floor treatments
- Major landscape work and site improvements
- Enhancing accessibility for a disabled person
- Making energy conservation improvements
- How to Use the FHA 203(k) Rehab Loan
- All About the Limited 203(k) Rehabilitation Loan
- FHA Construction Loans Compared With FHA 203(k) Rehab Loans
FHA Reverse Mortgages
An FHA reverse mortgage is designed for homeowners age 62 and older. It allows the borrower to convert equity in the home into income or a line of credit. The FHA reverse mortgage loan is also known as a Home Equity Conversion Mortgage (HECM), and is paid back when the homeowner no longer occupies the property.
There are requirements for an FHA-insured reverse mortgage or HECM;
- The loan is based on the age of the youngest borrower if there are co-signers.
- Homeowners are required to get consumer counseling and education before a HECM loan is approved.
- Borrowers must own and live on the property as the primary residence.
- How to Qualify for an FHA Reverse Mortgage
- FHA Reverse Mortgage Basics
- Common Questions About Home Equity Conversion Mortgages
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FHA Loan Articles and Mortgage News
April 19, 2024 - We write about many details of FHA home loans, and if you are on the path to homeownership for the first time, it helps to know some of the facts and fiction surrounding these home loans before you start looking for a home, a lender, or applying for pre-qualification.
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April 14, 2024 - When a first-time homebuyer starts researching their options for a mortgage loan, it’s easy to find bad information and half-true information online, even from otherwise trusted sources. Some publications do their due diligence and review FHA loan rules to ensure accuracy.
April 12, 2024 - There are important choices to make when deciding whether to rent or own, but making the most informed choice is crucial. Some don’t think about the advantage of a fixed mortgage payment over rent that potentially increases year to year.
April 11, 2024 - FHA home loans offer borrowers more forgiving credit qualifying requirements than some conventional mortgages, but borrowers must still qualify for the loan with FICO scores and credit history information. What can you do to improve your credit scores before applying for a loan?
April 10, 2024 - When CBS News reported that the National Association of Realtors agreed to pay $418 million over roughly four years to resolve all claims against the group by home sellers related to broker commissions, the news sent shockwaves through the real estate industry.
April 9, 2024 - If you have never bought or built a home before, it would be easy to assume there is just one type of loan offered and that it’s just a matter of picking a condo, existing construction, new construction, or deciding to build on your own land.
April 8, 2024 - Do experts think mortgage rates will drop during the spring of 2024? Some say no, but that doesn’t mean house hunters should give up hope. Many hang their hopes on the potential that the Fed will cut interest rates in late spring or early summer.
April 7, 2024 - If the home can’t pass the appraisal or if the home can’t be repaired to pass an appraisal, this could result in the lender denying the loan. The same is true if the home is located too close to high voltage power lines, oil or gas drilling operations, or in certain natural disaster hazard zones.
