Who Can Refinance An FHA Loan? We’ve been examining that question recently and according to HUD 4000.1, the FHA loan handbook, at least one borrower on the FHA refinance loan transaction must have legal title to the property. Under a section titled, “Borrower Eligibility”, we learn:
“At least one Borrower on the refinancing Mortgage must hold title to the Property being refinanced prior to case number assignment.” But there is also, depending on the nature of the home to be refinanced, a requirement on the property type itself. HUD 4000.1 states:
“For a transaction involving a Manufactured Home to be considered a refinance, the Manufactured Home must have been permanently erected on a site for more than twelve months prior to case number assignment.”
What are some other FHA refinance loan requirements? One issue relates to the practice of imminent domain. According to the FHA handbook, “For cases endorsed on or before September 30, 2015, the Mortgagee must not approve any Mortgage that refinances or otherwise replaces a Mortgage that has been subject to eminent domain condemnation or seizure, by a state, municipality, or any other political subdivision of a state.”
Other FHA loan rules govern areas such as the age that a borrower must be in order to apply for an FHA refinance loan-applicants must be of “legal age” in order to apply. There are also LTV restrictions, which depend on how long the borrower has owned the home or how old the FHA case number is.
Since the FHA loan is based in part on the adjusted value of the property, potential FHA refinance loan applicants should be aware of the following, from HUD 4000.1 page 155:
“For Properties acquired by the Borrower within 12 months of the case number assignment date, the Adjusted Value is the lesser of:
-the Borrower’s 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.”
So we see that the answer to the question, “Who can refinance an FHA loan” depends on the fact that the borrower is the legal title holder, and how/when the property to be refinanced was acquired. Talk to your loan officer if you aren’t clear on how these rules affect your transaction.