March 2, 2017
FHA refinance loans bring with them many questions, especially for first time applicants. Here’s a good example, a question asked recently in our comments section:
“My husband lost his home to a short sale on his previous marriage. We are currently doing a rent to own, but we hold the deed. They fought the lender, and won, and it was supposed to be taken off of his credit report. Equifax kept it on. His score is 709. Can we refinance our home?”
FHA refinance loan rules in HUD 4000.1 state, “A refinance transaction is a new Mortgage for a Borrower with legal title on the same Property with the proceeds used to pay off any existing liens.” If the reader’s circumstances (a “rent to own” arrangement, in this case) meets the previously mentioned criteria, an FHA loan may be possible if the borrower is financially qualified.
FHA refinance loan basics include requirements for borrowers and co-borrowers, “To be eligible, all occupying and non-occupying Borrowers and co-Borrowers must take title to the Property in their own name or a Living Trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments. In community property states, the Borrowers spouse is not required to be a Borrower or a Cosigner. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under State Law.”
FHA refinance loans usually require an occupancy commitment. A borrower cannot apply for a HECM, or an FHA cash-out refinance loan, for example, without agreeing to use the home as the primary residence.
FHA mortgages also have rules about maximum mortgage amounts. According to HUD 4000.1:
“A Mortgage that is to be insured by FHA cannot exceed the Nationwide Mortgage Limits, the nationwide area mortgage limit, or the maximum Loan-to-Value (LTV) ratio. The maximum LTV ratios vary depending upon the type of Borrower, type of transaction (purchase or refinance), program type, and stage of construction. Under most programs, the maximum Mortgage is the lesser of the Nationwide Mortgage Limit for the area, or a percentage of the Adjusted Value.”
FHA rules for calculating the adjusted value of the home are as follows for refinance transactions:
“For Properties acquired by the Borrower within 12 months of the case number assignment date, the Adjusted Value is the lesser of:
-the Borrowers purchase price, plus any documented improvements made subsequent to the purchase; or
-the Property Value.
Properties acquired by the Borrower within 12 months of case number assignment by inheritance or through a gift from a Family Member may utilize the calculation of Adjusted Value for properties purchased 12 months or greater. For properties acquired by the Borrower greater than or equal to 12 months prior to the case number assignment date, the Adjusted Value is the Property Value.”
FHA refinance loans that involve cash back to the borrower will always require a new appraisal and credit check. FHA streamline refinancing does not have an FHA required appraisal or credit check, but the lender may require one or both.
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.
Browse by Date: