Benefits of a FHA Refinance Program
There are many benefits of an FHA Refinance. If the homeowner is looking to lower their monthly payments, there are several options to have this done. If the credit of a homeowner improves and if there additional funds, a refinance can definitely lower the monthly mortgage payments directly by being offered a better interest rate. A lower interest rate is the easiest way to lower monthly payments for a homeowner, however there are other options. Another option is for a homeowner to use either the equity of the home, or provide additional outside money as a cash-in down payment towards the home. Be aware that a homeowner can use the FHA Refinance option if they did not use the FHA loan program for the original home loan. This means that if the homeowner decides to use the Conventional Loan program, they can then refinance the home through the FHA loan program. This refinance option may or may not have out of pocket costs for the homeowner depending on the equity of the home. For the normal FHA refinance option, a new appraisal will be needed.
FHA Streamline Refinancing is an option for the homeowner whose equity in the home has not changed much. This includes even properties that now have negative equity. This option is to help those who have used a government backed program to still be able to lower their monthly payments provided they get a better interest rate as well as cover all closing costs. This refinance option may have out of pocket costs for the homeowner. However, there is no need for an additional appraisal since the value of the home has not changed or has decreased since the original loan. Keep in mind that for FHA Streamline Refinancing, it is a requirement that the property has an FHA mortgage and it is not delinquent.
Qualifications for FHA Refinance Program
In order to qualify for an FHA Refinance, the refinanced property must be the borrower’s primary residence. What this means is the borrower cannot refinance a second or third home with the FHA Refinance option. This is the case for both FHA Refinance options. As a reminder, the original mortgage must be an FHA Loan in order for an FHA Streamline Refinance option to be available, but is not required for a regular FHA Refinance. The regular FHA Refinance options do allow cash out options but the FHA Streamline Refinance option does not. The FHA Streamline Refinance Program does require that the borrower shows they have paid the mortgage on time for the last 12 months. For the regular FHA Refinance option, a missed payment or two may be acceptable by the lender as long as the borrower provides a very detailed letter of explanation. This letter of explanation must include that the late payments were out of the borrower’s control and that late payments would not happen again. Additionally, in order for the FHA Streamline Refinance program to be approved, the resulting mortgage payment must have a tangible difference, including all fees and interest. This exact amount varies with the type of loan being refinanced and the interest on the new loan.
The regular FHA Refinance option is very similar to the actual FHA Loan process. A borrower looking to apply for the regular FHA Refinance can expect the process for this loan to have a bit less information needed than it’s loan program counterpart. A borrower can also expect the process for this loan to have a lot of similarities to a Conventional Refinance option. Unlike USDA Refinances, the borrower can opt to perform a regular FHA refinance on any primary residence, no matter what the original loan program was. The only time this is not true is for FHA Streamline Refinances.
For the normal FHA Refinance program, only the borrowers that will appear on the mortgage must submit asset and income documentation. Very similar to Conventional and USDA Refinance options, the underwriters use bank statements and pay stubs to verify the borrower’s assets and income. Any large deposits within 1 percent of the purchase price will need to be sourced with an accompanying letter of explanation, as this is required for anti-money laundering laws. This information is cross-referenced with a verification of employment that is filled out by the employer, most recent 2 years of W-2 forms or 1099 Forms and tax returns. All of these items will be needed by the underwriter to clear asset and income conditions.
For the FHA Streamline Refinance option, credit, income and asset information is still needed for debt-to-income calculations, but no extra items are needed. This means that a borrower applying for a FHA Streamline Refinance will not have to pay for another appraisal.
An appraisal report is a report that will only be needed for regular FHA Refinance options. As a reminder, it is purchased by the borrower to show the value of a property. An appraisal report is important because it gives the underwriter a sense of value that may then be compared to the purchase price, as well as an idea of the overall condition of the home. If the home is appraised higher than the current remaining loan amount, this means that the home has gained equity. Keep in mind that an appraisal is not a home inspection. An appraisal report can cost anywhere between $300 and $600 dollars. If there are repairs that are needed to meet FHA guidelines as requested by the appraiser, then those repairs will need to be completed promptly. Once these repairs are completed, a completion report is then paid for to have the appraiser confirm the home now meets guidelines.
FHA Refinance Program Requirements
Standard & Streamline – Recommended 580
Standard & Streamline – No Restrictions
Standard & Streamline – No Restrictions
Standard & Streamline – Min. 15% or loan-to-value of 85%
Standard – Cash Out Available Streamline – Cash Out Not Available
Standard & Streamline – Fixed Rate, Variable Rate, or Adjusted Rate
Standard – Can convert from any program Streamline – FHA to FHA Only
Standard – Yes Streamline – Not Required