The FHA has refinance programs to help you buy and own your home.
What is FHA refinancing?
FHA Refinance is a new loan that replaces an existing mortgage. Ideally, the new loan should have better terms or features that align with your financial goals. For example, you can lower your monthly payment, save money with a lower interest rate, or even shorten your loan term. In addition, it is possible to consolidate debts, change your loan type, and pay off a loan that’s due.
FHA Refinance Loan Options
The FHA, or the Federal Housing Administration, has four primary refinance loans designed for different homeowners.
1. FHA Cash-Out Refinance Loan
This refinancing option is advantageous to homeowners whose property has increased in market value. This type of loan allows you to take out another loan that is higher than the outstanding balance on your current mortgage. As a result, homeowners now have the option to access money in an illiquid asset during refinancing.
Most homeowners would use this option for home improvement, college tuition, or to pay off any other debts.
2. No Cash-Out Refinance Loans
If you are not looking to cash-out, there are a few different options available.
FHA Simple Refinance
These are best for borrowers looking to lower their monthly payment. This refinancing option is for homeowners with a current FHA loan to go into a new FHA loan. This process requires a new credit check, an FHA appraisal, and a loan-to-value ratio of 97.5% of the new appraised market value of the property.
FHA Rate and Term Refinance
These are similar to FHA Simple Refinance loans, however, these loans are for non-FHA mortgages. Borrowers prepare for this loan in the same way that they applied for their original mortgage. A new appraisal and credit check are also required during the application process.
FHA Streamline Refinance Loan
This is for current FHA loan customers. It allows borrowers to get a lower rate more quickly while avoiding some of the extra paperwork required for the other refinance programs such as the Simple Refinance loan. Note, it does not require an appraisal nor a full credit check, depending on your current home equity and loan balance.
Qualifying for a Streamline Refinance is a bit more difficult than qualifying for a Simple Refinance, such as an applicable net tangible benefit.
These are sometimes confused with the FHA Short Refinance loans, but the FHA Short Refi is another FHA program; it’s reserved for borrowers that do not currently have an FHA loan. These borrowers are underwater on their mortgage. In other words, they owe more than the current market value of their home. As a result, they would have a difficult time refinancing without this program.
3. FHA Reverse Mortgages
A reverse mortgage is also known as a Home Equity Conversion Mortgage or HECM. It is designed for qualified borrowers that are at least 62 years old. This new type of mortgage allows the borrower to convert their current home equity into a line of credit.
4. FHA Rehab Loans
FHA Rehabilitation loans are also known as FHA 203(k) mortgages. These loans are ideal for helping borrowers repair, remodel or renovate a home. As a result, you can refinance your property and improve it at the same time.