July 5, 2020

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Do You Need To Refinance Your Home Loan?

Do You Need to Refinance Your Home Loan?

Thinking about refinancing your FHA home loan or non-FHA mortgage? You can refinance either one into an FHA loan. Whether you are looking for cash back on the transaction, or you need a lower payment or interest rate, there’s a refi option for you.

There are even FHA mortgages that can help you refinance out of an adjustable-rate mortgage and into a fixed-rate loan.

Some refinance loans are only for existing FHA mortgages, others can refinance any home loan for a primary residence.

Refinance Loans And Cash Back

Cash-out refinancing is definitely an FHA home loan refinance option, but only one FHA refinance offers it; the FHA cash-out loan provides cash back to the borrower once the original loan is paid off and other expenses are settled.

No other FHA forward mortgage or refi loan does this. You cannot get cash back from an FHA Streamline Refinance (for FHA-to-FHA mortgages), an FHA Simple Refinance, or an FHA Rate-and-Term refi.

What To Expect From Your Payment Schedule When Refinancing

FHA loan rules do not allow borrowers to skip payments during the refinance. Your interest will accrue and payments will come due, don’t expect to do anything differently than to continue payments in some form–FHA loan rules are designed to prevent skipped mortgage payments.

For some refinance transactions the borrower must be current or be brought current on the mortgage as a condition of loan approval. 

In some cases certain missed payments may be forgiven or your loan modified to accommodate those missed payments, but that is something you will need to negotiate with the lender; forgiven payments are not considered “skipped” payments.

Cash-Out Refi Loans Require Minimum Payment Histories

You can’t apply for an FHA cash-out refinance loan until you have made six months worth of payments and have owned the home for six months. If you have had any delinquencies in the past 12 months you may have a harder time getting loan approval for a cash-out refinance.

FHA Loan-To-Value (LTV) Limits

The LTV limits are important as some borrowers may not be sure which refinance option is best for them. FHA Cash-out offers up to 80% of the value of the home (after a new appraisal). Other refinance loans have their own loan-to-value rules.

Streamline Refinance Loans

FHA Streamline Refinance loans have no FHA-required appraisal, no FHA-imposed LTV restrictions, and the general purpose of Streamline Refi loans is to help the borrower in some way with either a lower payment, lower interest rate, or moving out of an adjustable rate loan into a fixed rate mortgage.

FHA Streamline loans are limited to existing FHA mortgages and cannot be used to refinance non-FHA home loans.

Credit Scores Are Critical For Cash-Out Refi Loans

Any loan that provides cash back to the borrower including FHA Reverse Mortgages and FHA Cash-Out Refinance loans will require both a new appraisal and a new credit check. Treat any refinance loan like your original mortgage application–start working on your credit early and don’t delay!

Joe Wallace - Staff Writer

By Joe Wallace

May 26, 2020

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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