August 30, 2018
Some borrowers need to know: is there an FHA refinance loan that has no credit check? This question is more common than you might think and the answer depends on several variables.
FHA Refinance Loans That Require Credit Checks
There are many FHA mortgage loans that require both a new credit check and a new appraisal. Cash-out refinance loans are in this category, as are FHA reverse mortgages also known as Home Equity Conversion Mortgages (FHA HECM).
The lender is tasked with making sure the borrower can afford the new loan and that the borrower is an acceptable credit risk. After all, cash is going back to the borrower in the case of both an FHA reverse mortgage and an FHA Cash-Out Refinance loan and the financial institution will need to know the transaction is financially sound.
FHA refinance loans that require credit checks also include FHA Rehab loans such as the FHA 203(k), and FHA Streamline Refinance Loans that have add-ons which increase the monthly mortgage payment over a certain amount.
FHA rehab loans for disaster victims in federally-declared disaster areas (FHA 203(h) Rehab loans) also require a credit check but the loan rules for these mortgages are more lenient.
HUD 4000.1 states, “For Borrowers with derogatory credit, the Mortgagee may consider the Borrower a satisfactory credit risk if the credit report indicates satisfactory credit prior to a disaster, and any derogatory credit subsequent to the date of the disaster is related to the effects of the disaster.”
FHA Streamline Refinancing (also known as FHA Interest Rate Reduction Refinancing Loans) do not normally feature an FHA-required credit check (see below).
FHA Refinance Loans That Do Not Require A Credit Check
FHA Interest Rate Reduction Refinance Loans do not normally feature an FHA-required credit check except in certain cases. HUD 4000.1 states, “A Borrower is eligible for a Streamline Refinance without credit qualification if all Borrowers on the existing Mortgage remain as Borrowers on the new Mortgage. Mortgages that have been assumed are eligible provided the previous Borrower was released from liability.”
However, it is very important to point out that FHA loan rules are not the only ones that may affect such transactions. There may be no FHA requirement for a credit check on an FHA Interest Rate Reduction Refinance Loan, but if the lender requires one then a credit check will indeed be necessary.
It’s best to treat any refinance loan transaction the way you approached the original mortgage loan; prepare your credit in the year leading up to the loan application, and make 12 months of on-time payments on all financial obligations every time.
Credit checks are one of the most basic lender tools for determining loan approval; it’s safest to assume your credit will be checked as part of your new loan.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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