FHA Refinance Guidelines
If you are looking to invest in your property and enjoy the benefits year after year, refinancing with an FHA loan will be an investment worth your while. A lender issues a loan insured by the Federal Housing Administration reducing the risk of loss. This program was instated due to a massive amount of foreclosures and defaults in the 1930’s. The FHA home loan program had stimulated the housing market; making sure home ownership is easily achieved.
Types of FHA Refinance Loans
There are two types of programs when refinancing to an FHA loan:
Conventional to FHA refinance –
FHA allows a rate and term refinance program from a conventional loan to an FHA loan. The subject property must have at least 3.25% in equity and the standard FHA loan requirement applies as far as credit, income and asset requirement. The term is anywhere from 10 – 30 years. The mortgage insurance requirement (MIP) is for the life of the loan and cannot be eliminated.
There are several reasons to refinance from a conventional loan to an FHA loan.
- Refinance an adjustable rate mortgage (ARM) to a fixed rate mortgage – homeowners can refinance from a conventional ARM loan to an FHA fixed-rate loan.
- Lower the interest rate – the interest rate of FHA loans are typically lower than conventional mortgages. Lowering the interest rate on the loan results in lower monthly payments.
- Cut the finance term – people who have a conventional loan can refinance to an FHA loan and cut the term from 30 years to 15 years. Refinancing to a shorter term may result in a higher monthly payment but builds equity faster.
FHA Streamline refinance loan program refers to refinancing an existing FHA-insured loan to another FHA mortgage. The streamline program was introduced to speed up the home refinancing process from one FHA loan to another FHA loan. The homeowner can use the original paperwork when the house was purchased. FHA streamline requires no appraisal because the original value of the house will be used to determine loan-to-value. There is no income requirement, the mortgagee does not need to perform a credit check, only a verification of the mortgage to make sure the borrower is not delinquent on the loan.
FHA Streamline Requirements
The basic requirements of an FHA streamline refinance are:
- The property must be owned by the homeowner for at least six months and mortgage to be refinanced must be currently an FHA-insured mortgage.
- The mortgage must be current and not delinquent. All payments in the last 12 months must be on time.
- The refinance must result in a “net tangible benefit”. The net tangible benefit must be met in form of interest rate reduction, term reduction, or monthly payment reduction.
When refinancing to an FHA loan, there are several things you will need for your application:
- Your last 2 years of residence;
- Employment information in the last two years;
- Income tax returns for the last two years along with W2s, 1099s, etc.;
- Two (2) months of bank statements;
- Full 30 days paycheck stubs.
Having all of these documentation handy will speed up the application process and will help achieve better results at a much faster pace.
If you are looking to refinance your mortgage but have minimal equity, the most appealing option to most borrowers is the rate and term refi. It will lower the current rate you are paying now and result in a lower monthly payment. You can change the terms of your loan without losing your hard-earned equity.
FHA refinance allows loan-to-value of up to 97.75%. Compared to conventional loan that only allows a maximum of 95% loan-to-value, FHA is a better option.
When looking to refinance your home, look at all the options available to you. As FHA Loan Specialists, we are able to provide you with options. It is important that you find one that will fit your needs appropriately. By choosing either an FHA Streamline for an existing FHA loan or to go with a regular FHA rate and term option, you will be able to reduce your payment and build equity faster.
When applying, make sure you have all the required documentation handy. This will ensure that your application goes through with flying colors and close in a timely manner. Consult any of our FHA Loan Specialists to refinance your home. We will guide you every step of the way. Call us at (866) 772-3802.