March 13, 2017
Are you thinking about refinancing into an FHA loan from an existing non-FHA mortgage? Do you already have an FHA mortgage and want to refinance? There are options under the FHA loan program for both, including the possibility of applying for a refinance loan to repair the property or add improvements to it.
FHA refinance loans are intended for all financially qualified borrowers regardless of their current loan, whether it is an existing FHA, conventional, VA, or other non-FHA mortgage. FHA refinance loan options include cash-out, no cash-out, rehab mortgages, and streamline refinancing.
FHA Streamline Refinance loans are intended for those with existing FHA mortgages and have no FHA-required appraisal or credit check. The lender may require both, but the FHA loan rules in HUD 4000.1 allow participating lenders to use the borrower’s existing credit check and appraisal (the same ones used to purchase the property) to process the loan.
Conventional-to-FHA loans (and all cash-out refinancing) would require a new appraisal and credit check. But the good thing about non-FHA refinancing to FHA loans is that a borrower can switch from the existing lender to a new participating FHA lender if so desired. However, changing lenders is not a requirement if the current financial institution participates in the FHA loan program.
And what about those FHA rehab loans? HUD 4000.1 says these loans are permitted to:
-rehabilitate an existing one- to four-unit Structure, which will be used primarily for residential purposes;
-rehabilitate such a Structure and refinance outstanding indebtedness on the Structure and the Real Property on which the Structure is located; or
-purchase and rehabilitate a Structure and purchase the Real Property on which the Structure is located.
There are two types of FHA rehab refinancing loans available (three, if you count the FHA rehab loan program for those affected by natural disasters). They include a limited 203(k) for smaller projects, and a standard 203(k) for more ambitious work. Here’s what HUD 4000.1 says about FHA rehab loans:
(1) Standard 203(k)
The Standard 203(k) Mortgage may be used for remodeling and repairs. There is a minimum repair cost of $5,000 and the use of a 203(k) Consultant is required.
(2) Limited 203(k)
The Limited 203(k) may only be used for minor remodeling and non-structural repairs. The Limited 203(k) does not require the use of a 203(k) Consultant, but a Consultant may be used. The total rehabilitation cost must not exceed $35,000. There is no minimum rehabilitation cost.
The FHA rehab loan program can be used in conjunction with the FHA Energy Efficient Mortgage (FHA EEM) which also allows added loan funds for the specific purpose of adding approved energy efficient upgrades to the property. Speak to your lender about how to get both the 203(k) loan and the FHA EEM.
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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