September 4, 2018
Five things you should know about FHA refinance loans include the fact that you can find an FHA mortgage to refinance any typical home loan, you can get a refinance loan with cash out, and you can refinance a home to remove an ex-coborrower, spouse, or other persons from the mortgage.
#5: FHA Refinance Loans Are Available For Both Existing FHA Mortgages And Non-FHA Mortgages
You may only refinance a mortgage using an FHA refinance loan, but the types of mortgage you can refinance include FHA, VA, conventional, USDA, etc. You do not have to have an existing FHA mortgage to apply for FHA refinancing.
You are required to occupy the home being refinanced with the FHA mortgage, and refinance loans for secondary residences may be limited depending on the loan and lender standards. You can also refinance a home that has been inherited or is in a living trust, provided the transaction meets FHA and lender standards.
#4: FHA Refinance Loans Include A Cash-Out Option
FHA refi loans include the FHA cash-out refinance, which permits cash back to the borrower once the original loan has been paid off and other expenses of the new loan have been satisfied.
It’s best to consider a cash out refinance loan when you have suitable equity in the property; those who have not been paying on a mortgage loan very long should ask their loan officer whether waiting a bit longer (when they are new in the home) might be an advantage depending on market conditions, the borrower’s financial needs and goals, etc.
#3: FHA Refinance Loans For Changing The Ownership Of The Property
FHA loan rules require at least one party to the original loan (or whoever is listed on the title) to be involved in the new transaction. That said, it is possible to buy out a title holder using an FHA refinance loan. According to HUD 4000.1, “When the purpose of the new Mortgage is to refinance an existing Mortgage to buy out an existing title-holder’s equity, the specified equity to be paid is considered property-related indebtedness and eligible to be included in the new mortgage calculation.”
HUD 4000.1 adds that the lender is required to have copies of any pertinent documents in this area such as a divorce decree or other legally enforcable agreement “to document the equity awarded to the title-holder.”
#2: Most FHA Refinance Loans Require A New Credit Check And Appraisal
To properly set the amount of the refinance loan, your participating FHA lender will normally require a new credit check and appraisal. The credit check for refinance loans is just as thorough as the original credit check in most cases; borrowers should expect to prepare for the new loan in the same way they prepared for the original mortgage where credit is concerned.
The new appraisal insures that the loan amount and valuation of the home is current and reflects market conditions at the time.
#1: FHA Refinance Loans Can Be Used For Rehab
Home owners specifically interested in a refinance loan to pay for approved rehab work on the home should consider applying for an FHA Rehab Refinance Loan instead of a cash-out refi. FHA Rehab Loans, also known as FHA 203(k), are available as both new purchase mortgages and refinances. Your participating lender can explain the difference between a cash-out FHA refi and an FHA rehab loan but in general the rehab loan funds can only be used for specific purposes and approved projects.
The use of an escrow account will be required, and the borrower may need to hire third parties to do contracting work, inspections, etc. FHA Rehab loans are for very specific work that needs to be done on a property to improve safety, energy efficiency, and/or increase property values. Cash-out refi loans are more general and don’t require FHA approval for certain projects around the home, but loan-to-value calculations will differ between the two programs.
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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