One common question about FHA refinance loans involves skipping payments. The ability to skip a payment prior to getting a refinance loan seems like an attractive option to many borrowers, and for those who have become delinquent on home loans. But does the FHA allow skipping payments? How do FHA loan rules address delinquent accounts that are being refinanced?
HUD 4155.1 Chapter Three addresses these issues in general, stating:
“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.”
To clarify, Chapter Three, Section A of HUD 4155.1 provides the following example for us to review:
“If the borrower is closing on April 8, he/she must have made the March payment within the month of March, and the April payment by closing. The April payment may be included in the payoff amount at closing. 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.
The borrower must either
• make the payment when it is due, or
• bring the monthly mortgage payment check to settlement.”
That seems fairly straightforward. But what about delinquent loans and refinancing? For FHA Cash-Out Refinancing, we learn the following from HUD 4155.1 Chapter Three Section B:
“Borrowers who are delinquent, in arrears, or who have suffered any mortgage delinquencies within the most recent 12 month period under the terms and conditions of their mortgages are not eligible for cash out refinances. If a property is encumbered by a mortgage, the refinancing lender must document that the borrower has an acceptable payment history.
The payment history is acceptable if the borrower
• is current, and
• has made all payments on the mortgage being refinanced within the month due for the previous 12 months.
For mortgages with more than six months and fewer than 12 months of payment history, the borrower must have made all payments when due. Mortgages with fewer than six months of payment history are not eligible for cash out refinances.”
We’ll examine the FHA loan rules for Streamline Refinancing with regard to missed payments in our next blog post.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.