FHA home loans come in both forward mortgages for purchasing homes but also refinance loan options. You can refinance a home with FHA cash-out loans, FHA Streamline loans, and Reverse Mortgages.
The type of FHA refinance that’s right for you depends on your financial needs and goals, but there is a refinance loan option for most needs. Which one is right for you?
FHA Cash-Out Refinance Loans
FHA cash-out refinancing is for any mortgage, FHA or non-FHA. You do not have to have an existing FHA mortgage to apply for an FHA cash-out refinance and you do not have to use the same lender that issued your original mortgage.
Cash-out refinancing requires a new appraisal and the amount of cash back to you depends on how much of your new loan will go toward paying off the original mortgage plus any associated expenses for the loan. Maximum FHA loan amounts for these refinance mortgages are defined in HUD 4000.1 as follows:
“Under most programs, the maximum Mortgage is the lesser of the Nationwide Mortgage Limit for the area, or a percentage of the Adjusted Value.” When it comes to FHA refinance loans, the adjusted value is calculated according to this portion of HUD 4000.1:
“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.”
Lender requirements may also apply.
FHA Streamline Refinance Loan Options
FHA Streamline refinance loans are, unlike FHA cash-out refi loans, for existing FHA mortgages only and must result in a specific benefit to the borrower such as a lower mortgage payment, getting out of an adjustable rate mortgage, etc. FHA Streamline refinance loans have no FHA-required credit check or appraisal in most cases, though a lender is free to require them both if needed.
Streamline refinance loans take the borrower’s original credit application data to use for the new loan (unless the lender chooses to require a new application) and there is no cash out to the borrower.
Streamline refinance loans are an excellent tool to help lower loan payments; borrowers who have a priority of lower payments do well to consider such a refinance loan option. The usual FHA loan add-ons are possible such as an FHA Energy Efficient Mortgage or financing of the Up-Front Mortgage Insurance Premium.
Streamline loans don’t allow you to include other closing costs into the loan amount, but the lower payments trade-off is worth it for many borrowers.
The tangible benefits to the borrower in the form of a lower interest rate, lower mortgage payment, getting into a fixed rate, etc. are designed to help borrowers continue to be able to afford their homes.
FHA Reverse Mortgages
The FHA Reverse Mortgage is a type of loan for qualified borrowers 62 or older who own their homes are are very nearly paid off on their mortgage. These loans let the borrower take value out of the home in cash, the amount and payments determined by the type of reverse mortgage loan you get (fixed or adjustable interest rate).
FHA Reverse Mortgages are a lot like other home loans in some ways-occupancy is required; the borrower must stay current on all property taxes and homeowner’s association obligations.
But there are important differences, too; the loan has no monthly mortgage payments and the borrower pays the loan in full when the home is no longer being used as the primary residence. The loan can also come due when the borrower dies or sells the property.
Reverse mortgages require mandatory counseling for all who are to be obligated on the mortgage as a condition of loan approval but this can be an excellent option to pay off credit card debt, fund a vacation or the purchase of a new vehicle.