What is an FHA rate and term refinance? This refinance loan is different than FHA cash-out refinancing or reverse mortgages. The rules that cover FHA rate and term refinancing are found in the FHA loan handbook, HUD 4000.1, and explains how this type of mortgage differs from the rest.
What Are FHA Rate And Term Refinance Loans?
HUD 4000.1 defines an FHA rate and term refinance loan as follows:
“Rate and Term refers to a no cash-out refinance of any Mortgage in which all proceeds are used to pay existing mortgage liens on the subject Property and costs associated with the transaction.”
Who Is Eligible To Apply For An FHA Rate And Term Refinance Loan?
HUD 4000.1 explains that “at least one Borrower” named on the original home loan as the title holder must be on the new loan. The rate-and-term refinance loan cannot be approved unless a title holder is included.
What Properties Are Eligible For An FHA Rate And Term Refinance Loan?
FHA loan rules don’t mention all property types by name, but there is a section with special requirements for manufactured housing. According to HUD 4000.1:
“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.”
There is one additional requirement, this one listed for all property types:
“If the Mortgage to be insured is located in an area where a state, municipality, or other political subdivision has exercised eminent domain condemnation or seizure of a Mortgage, the Mortgagee must obtain a certification from the Borrower stating the Mortgage being refinanced was not subject to eminent domain condemnation or seizure.”
Payment History Rules For FHA Rate And Term Refinancing
Depending on how long you have owned the home, FHA loan rules vary when it comes to requirements for payment history. If you have had less than six months of payments, you’re required to have made all mortgage payments “within the month due”.
HUD 4000.1 also states, “For all mortgages on all properties with greater than six months history, the Borrower must have made all Mortgage Payments within the month due for the six months prior to case number assignment and have no more than one 30-Day late payment for the previous six months for all mortgages.”
Furthermore, “The Borrower must have made the payments for all Mortgages secured by the subject Property for the month prior to mortgage Disbursement”.
Maximum Mortgage Loan Amounts For FHA Rate And Term Refinancing
The maximum loan amount for an FHA rate-and-term refinance loan depends on how long you have occupied the property. Borrowers are generally eligible for “97.75 percent for Principal Residences” as long as the home has been owner-occupied for the previous 12 months, or “owner-occupied since acquisition if acquired within 12 months, at case number assignment”.
An 85 percent limit applies for those who have “occupied the subject Property as their Principal Residence for fewer than 12 months prior to the case number assignment date” and in cases where the home has been owned less than 12 months, but the borrower “has not occupied the Property for that entire period of ownership”.