What are the FHA refinance mortgage options?
There are several FHA Refinance Program Options.
- Cash out refinance
- No cash out refinance
- FHA streamline refinance
Cash out refinance
As the name implies a cash out refinance allows the borrower to take cash from the equity in your home. The amount that maybe taken out is determined after all costs associated with the refinance are paid. A maximum LTV of 95% is possible.
The borrower should own the subject property for at least 1 year. The borrower should have completely fulfilled the requirements of the previous loan and settled the payment before the due date.
*note A 95% LTV is only possible if the loan has passed through the FHA scorecard.
No cash out refinance
The no cash out refinance allows borrowers to take advantage interest rates and certain home improvement options. The most common use is with the FHA Power Saver program and the FHA energy efficent mortgage (EEM).
A streamline refinance is built for efficiency in processing hence the name streamline. It does this by not requiring as much documentation.
- No appraisal required
- Minimal credit check
FHA Refinance fundamentals
An FHA refinance loan is a transaction that involves repaying the existing debt on the real estate from the proceeds of a new mortgage taken on the same property. If the borrower has a legal title even though the name of the borrower is not on the original loan, the borrower is still eligible for refinancing the loan. To process a refinance transaction one must consider the following:
- FHA Maximum Percentage Financing: The most important factor in refinancing is the maximum percentage financing eligibility. This is governed by the borrowers occupancy status in the property, the utilization of the loan proceeds, and the most important aspect of how and when the purchase of the property was completed. FHA would insure different types of refinance transactions, which includes streamline refinances of the existing FHA – insured mortgages that are made with or without appraisals. The no cash out refinance scheme of the conventional and the FHA insured mortgages are where all the proceeds are to be used to pay the existing liens and the costs, which is associated with the transaction .There are cash out refinances using this method.
- FHA Maximum Term: The maximum term of the refinance available to the borrower with an appraisal is thirty years. In a streamline refinance as per the section 1 – 12 done without appraisal, it would be limited to the remaining period of the existing mortgage plus twelve years, in such a way that the total period should not exceed over thirty years.
- C. Re-Using an FHA Appraisal: The appraisal done by FHA on the existing properties would be valid for six months. This appraisal cannot be re-used during this period for the mortgage of the same property or for which the appraisal was completed and has been closed. The appraisal done for a particular property for the purchase of the property cannot be used subsequently for another refinance, even if the period has not exceeded six months. A Fresh appraisal will have to be ordered and done for every refinance transaction that requires an appraisal.
- D. FHA Refinance Authorization: The lender should obtain the Refinance Authorization Number that will be provided by the FHA Connection or functional equivalent authorities to complete all FHA refinances.
- E. Skipped Payments are not possible: The lenders will not allow the borrowers to skip any payment in between. The borrower will have to make the payment right on the due date. The monthly mortgage payment check will have to be given when it is due or they could make a settlement with the lender. When the new mortgage numbers are calculated, the lender shall not have any skipped mortgage payments and if for any reason there are any skipped payments, FHA will not allow these skipped payments by the homeowners to be included in the new mortgage amount. For example if a borrower mortgage payment is due for May 1 and wants to close the refinance before the end of that month, the borrower will not be permitted to roll the May mortgage payment into the new FHA loan amount.