Did you know? If you are availing FHA loans for home financing, you can make a smarter move by opting for FHA refinance which allows you to save more money every month. FHA refinancing allows home buyers to enjoy lower interest rates and lower monthly payments, which means you will have less burden on your shoulders.
FHA streamline refinancing is designed for home buyers having an existing FHA home loan and no appraisal would be required to qualifying. Compared to traditional refinances, the processing of FHA refinance is quicker and simple, since no credit or income verification is needed. Even though the qualifying requirements for FHA refinancing are quite simple, the lender may stack upon their own rules, so it is worth shopping around.
FHA Refinance Rules
The basic requirements for qualifying for FHA refinancing are:
- In order to qualify, the refinancing should lower the monthly payments by at least 5%. This means you will be eligible for the FHA refinancing only if you benefit from it.
- The borrowers must be current on their mortgages. Only one late payment in the previous year will be considered. Moreover, the borrower must have made three payments in full and in-time.
- Before qualifying for FHA refinancing, the borrower has to pay the monthly installments for at least 6 months.
- The borrower will not be allowed to take out cash from the refinancing and all other fees like closing costs, etc, should be paid from the pocket. If you ask the lender to pay the closing costs, you will have to settle for higher interest rates.
Types of FHA Refinances
FHA offers three different refinancing options namely FHA streamline refinance, a cash-out FHA refinance or FHA replacement loan and the qualifying guidelines may vary depending on which program you choose. If you choose anyone between the first two options, you are required to have an existing FHA loan, while for the third one you need to have a conventional or non-FHA loan.
FHA Streamline Refinance
This refinancing option is only available for existing FHA borrowers who are willing to lower their mortgage payments by lowering the interest rates. FHA streamlined refinancing requires little or no paperwork or documentation since it fetches all the required information from the original FHA home loan application. The basic requirements to qualify for FHA streamlined refinance is that, you should be employed and the new loan must offer lower monthly payments compared to the existing loan. No income or credit verification are requires and this results in faster processing of FHA streamlined refinances.
FHA Cash Out Refinance
FHA cash out refinance allows you to apply for a loan which amounts more than the current balance of the existing FHA loan. You can use the excess amount for other purposes. Borrowers having sufficient home equity can use FHA cash out refinance to fulfill other financial needs. Currently, FHA allows up to 85% of the home equity in form of cash. In this case, an appraisal needs to be done, to determine the current market value of the property and you might have to pay for this appraisal. the new monthly payments of the refinanced loans should be 29% lower than your monthly income.
FHA Replacement Loan
If you have an existing conventional or non-FHA loan and want to take advantage of the benefits provided by FHA, you can opt for a FHA replacement loan. The qualifying factors for FHA replacement loans are identical to those of the FHA cash out refinance.
There are many advantages of FHA refinance—it is easier to qualify and no appraisal is required. If you have an existing FHA insured loan and you are not satisfied by the interest rate you are paying, it is worth talking to the lender about the refinancing options and see what they have to offer. To know more about FHA refinancing get in touch with us to consult with our loan experts today!