January 30, 2014
If you’re interested in refinancing your home loan with an FHA loan but have never explored your refinancing loan options before, there are a few things you should know about the FHA refinancing loan program that can help you make the best choices for your needs and wants.
The rules which govern FHA loan refinancing are found in HUD 4155.1, Chapter Three (and elsewhere). In this portion of the FHA loan rulebook. we learn that FHA refinancing loans include the following:
- streamline refinances of existing FHA-insured mortgages made with or without appraisals
- no cash out refinances (rate and term) of conventional and FHA-insured mortgages, where all proceeds are used to pay existing liens and costs associated with the transactions
- cash out refinances
How long a term is an FHA loan applicant eligible to apply for when looking at FHA refinancing options? According to Chapter Three, the maximum term for any with-appraisal refinancing is 30 years. When it comes to streamline refinancing loans, (without an appraisal) the term is limited to the remaining term of the existing mortgage, plus 12 years, or 30 years, whichever term is the shortest.
For “appraisal required” FHA refinance loans, can the borrower use an existing, still-valid appraisal on the property? According to Chapter Three, “FHA appraisals on existing properties are valid for six months. However, appraisals cannot be reused
• during the six month validity period once the mortgage for which the appraisal was ordered has closed, or
• for a subsequent refinance, even if six months have not passed.”
In other words, Chapter Three says, “A new appraisal is required for each refinance transaction requiring an appraisal.”
Is a lender able to offer the borrower “skipped payments” on an FHA refinance loan? According to Chapter Three, the answer is no. “The borrower must be current on the loan being refinanced for the month due prior to the month in which he/she closes the refinancing, and for the month in which he/she closes.”
The FHA adds, “Lenders are not permitted to allow borrowers to ‘skip’ payments when refinancing. When the new mortgage amount is calculated, FHA does not permit any mortgage payments ‘skipped’ by the borrower to be included in the new mortgage amount.” Furthermore, the FHA states that in borrower must either “make the payment when it is due, or bring the monthly mortgage payment check to settlement.”
These aren’t all the rules that cover FHA refinance loans, but knowing these is a very good start in making an informed decision about your FHA loan options.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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