FHA Refinance

FHA Refinance Solutions

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February 26, 2024

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FHA loans are a wildly popular type of home financing for anyone struggling to get approval for conventional home loans. The Federal Housing Administration (FHA) sponsors these products through private lenders as a pathway to homeownership with easy qualifying requirements and fair rates and terms.

Regardless of your initial loan, it may eventually make sense to rework a mortgage as your credit and finances improve. Fortunately, the FHA offers refinancing as well. Learn more about FHA refinance solutions to see what’s right for you.

An FHA Refinance to a Conventional Loan

FHA financing is a type of nonconventional loan, meaning the federal government insures it. In some cases, clients with FHA loans wish to refinance to conventional loans for a better rate or term.

Conventional loans do not have government backing, so the lender takes on a greater risk with these products. Consequently, they set stricter standards for this financing, making it harder to qualify. To convert your FHA loan into a conventional mortgage, you’ll need to have solid credit, a pristine payment history, and documentation showing a steady income.

Besides lower interest rates or better terms, conventional loans also don’t require mortgage insurance after you reach 20% equity. Conversely, FHA loans require mortgage insurance for at least 11 years or, in cases of a low down payment, the entire life of the loan.

An FHA Cash-Out Refinance

If you need cash for any expense or if you want to get better terms and still have an FHA loan, an FHA cash-out refinance may be ideal. In this situation, you take on a new mortgage that is worth more than what you currently owe on your existing home loan. Then, you get the difference in value in cash. In essence, you’re borrowing capital with your house as collateral.

For example, suppose you owed $50,000 on your mortgage but needed $25,000 in cash. You could refinance your home loan for $75,000 (plus any necessary fees) to get the $25,000 in cash you require.

This type of FHA refinance is beneficial because you can use the funds for anything you’d like without restrictions. You can pay off high-interest credit card debt, consolidate other loans, renovate your home, make investments, or cover college tuition. Even better is the fact that you might be able to secure better terms and rates at the same time.

The requirements for this refinance typically require a credit score of at least 600 or higher, and you should be in good financial standing. The lender will also check that you have at least an average debt-to-income ratio and that your payment history is good. The loan-to-value ratio is another consideration, as your new mortgage cannot cover more than 80% of the value of the home.

FHA Streamline Refinance

One of the fastest ways to refinance is with the aptly named FHA streamline refinance. With this product, you only need minimal documentation to get a lower interest rate.

The requirements here are that you have an existing FHA loan that you’re converting to another FHA loan. The FHA also mandates that this loan will provide you with a net tangible benefit. Furthermore, you must have made six on-time mortgage payments on your home and surpassed 210 days since closing.

If your loan is less than a year old, you cannot have any overdue payments in the past 30 days. For a loan older than one year, you may not have had late payments in the previous 90 days and no more than one late payment in the previous year. However, you do not have to verify your employment, get an appraisal, or qualify your credit for approval.

FHA Simple Refinance

A simple refinance is another way to move from one FHA loan to another. This can be a good option if you want to get lower rates, move from an adjustable-rate mortgage to a fixed rate, or simply get lower mortgage payments.

In contrast with the streamline option, you will have to get a home appraisal to qualify for this loan. Your credit score, income, and assets must also meet the requirements, and you have to be current on payments. A simple refinance can also allow you to roll the closing costs into the loan, as well as remove co-borrowers from your mortgage.

FHA 203(k) Rehab Loans

When you need to make significant improvements or repairs to your home, the FHA 203(k) refinance lets you roll those costs into your home loan. You’ll have to choose between the limited and standard options.

The limited option offers up to $35,000 for surface-level repairs. However, you don’t have a minimum spending requirement. The standard option has no cap, but you have to dedicate at least $5,000 to home projects. Also, you can use that money for major home renovations, including structural repairs.

You can obtain this financing without having an FHA loan to start with. Still, you must get an appraisal and meet the credit score, down payment, and debt-to-income (DTI) requirements. While the lowest score the FHA allows is 500, lenders usually prefer at least 580. The maximum DTI is 43%, and the down payment is usually 3.5%

Note that this type of loan is only for primary residences and not investment properties. If you need that type of financing, talk to a member of Associates Home Loan to discover alternatives.

FHA Reverse Mortgages

Reverse mortgages are for senior homeowners with substantial equity in their homes. If you’re over 62, you can convert your home equity into an FHA-backed line of credit. The official name for this is a Home Equity Conversion Mortgage (HECM).

A HECM requires you to get consumer counseling and is only for primary residences. If you leave the property or die, the loan is due, which you or your heirs can satisfy by selling the property or turning it over to the lender.

Get Hands-On Help To Find the Right FHA Refinance Option

This brief consideration shows that you have many options for an FHA refinance. Still, you may need a little more guidance on which suits your situation. Talk to our friendly team at Associates Home Loan to learn more information, or head to our site to apply for an FHA refinance today.

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