FHA Home Refinance LoansRefinancing is the process of replacing an existing mortgage loan with a new mortgage under different terms. The new term could be a lower interest rate, a shorter time frame to pay off the loan, or both. There are two basic mortgages refinance options: (1) Rate and Term Refinance, and (2) Cash-out Refinance, respectively. Since a cash-out refi or a home equity loan deal with pulling equity out of the property in the form of cash, that is another topic that’s discussed in a different section of this site.
Rate and Term RefinanceThe concept of refinancing your existing mortgage to get a lower rate, thereby lowering your monthly payment is not a new thing. This option has been around since time immemorial. However, there are a few things a homeowner should know before taking the plunge into refinancing.
Conventional to FHA Refinance – A homeowner can refinance their conventional mortgage into an FHA mortgage anytime. The Federal Housing Administration allows anybody to convert a conventional loan to an FHA loan, up to 96.5% loan-to-value, but no cash can be taken out at closing. FHA has a maximum loan limit as dictated by the county.
FHA to FHA Refinance – A homeowner that currently has an FHA-insured loan can refinance to another FHA loan. This process is called “Streamline Refinance”. The streamline program refers to the refinancing an existing FHA mortgage with minimal documentation and underwriting. Streamline refinances are available with credit qualifying and non-credit qualifying options. They also have with appraisal and no-appraisal options. However, streamline doesn’t mean that there are no costs involved in the whole transaction anymore. Streamline refinance only pertains to the amount of documentation and underwriting requirements, not the fees associated with the loan itself.
In order to qualify for an FHA streamline refinance, these requirements must be met:
- The mortgage to be refinanced must be an FHA-insured loan already. At least 210 days must have passed from the original closing date of the original mortgage being refinanced. A homeowner must have made at least 6 payments to qualify for a streamline refi.
- The existing FHA mortgage must be current and not delinquent. Homeowners who have not had their loan for a year cannot have any payment late more than 30 days. Those who had their loans older than a year can have one 30-day late payment, but no late payments in the last 90 days from application date.
- The refinance transaction must result in a “net tangible benefit to the borrower. It must improve the borrower’s financial position by doing a streamline refi.
- Any cash in excess of $500 must not be taken out on any streamline transaction.
- No Credit, No Appraisal – no new credit is pulled, no new appraisal will be ordered. The original sales price will be used in lieu of an appraisal report;
- No Credit, Full Appraisal – no new credit is pulled, but a new appraisal report will be ordered to determine the value of the property;
- Full Credit, No Appraisal – the borrower’s credit will be pulled to determine eligibility, but no new appraisal will be ordered. The original sales price will be used as the appraised value;
- Full Credit, Full Appraisal – a new credit will be pulled and a new appraisal will be ordered.
Mortgage Insurance and MI RefundsHomeowners that have an FHA endorsement date on or before May 31, 2009, are eligible for a reduced premium of 0.01% Upfront Mortgage Insurance and a .55% monthly MI. If the loan was closed after that time, the new loan is subject to the regular MI premium, which is 1.75% for the Upfront MI, and 0.85% for the monthly mortgage insurance.
When a borrower’s loan gets paid off within the first 3 years of endorsement, they are entitled to a refund of the upfront mortgage insurance that was charged to the loan. The refund amount is determined by how long ago the mortgage was opened and when the new loan started and paid-off the previous FHA loan. Each month, the refund amount decreases.