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Do You Need To Refinance?

February 17, 2023

FHA Refinance Options

Do you need to refinance your home loan, but aren’t sure what the difference is between an FHA Streamline Refinance loan and FHA cash-out refinancing?

These loans have important differences, beginning with the availability of cash paid to the borrower at closing time. One refi option permits cash back, the other does not.

FHA Cash-Out Refinancing Loans

FHA cash-out refi loans allow the borrower to be paid cash at closing when the costs of the new loan have been satisfied and the original loan has been paid off. These cash-out loans are offered by both FHA lenders and conventional lenders; why should a borrower choose an FHA cash-out refinance?

Interest rates are generally lower on government-backed mortgages like FHA refinance loans. That said, your FICO scores will affect the actual rate offered to you and you will need to pay attention to your credit scores and history in the year leading up to your refinance loan application.

FHA cash-out loans can be used to refinance an existing FHA mortgage or non-FHA loan. In either case, an FHA cash-out refinance can also include additional money for energy-saving improvements to the home when the borrower applies for a loan that includes an FHA Energy Efficient Mortgage (EEM). 

These extra funds are sometimes discussed as cash back to the borrower, but the fact is that the funds you get through the EEM program may ONLY be used to pay for approved projects to improve the property. These funds cannot be used without lender approval.

FHA Streamline Refinance Loans: An Option For Later?

FHA Streamline refinance loans allow homeowners paying on existing FHA mortgages to apply for refinancing with no FHA-required credit check.  In 2022 and to date in 2023, these loans aren’t the best option for many borrowers who likely have to refinance into a higher interest rate than the original loan due to inflation, Fed interest rate hikes, and the overall state of the housing market.

When interest rates begin to move closer to what many consider to be “normal” (as in, not affected by Fed rate hikes) Streamline refinancing is a more realistic option. Keep this one in mind for the future. When conditions are better suited for these refi loans, the information below will be helpful.

Streamline refinance loans are intended to provide a tangible benefit to the borrower; such benefits can include a lower mortgage payment or a lower interest rate. You cannot get cash back on these refi transactions except in the form of a refund for money paid upfront for items later financed into the mortgage.

FHA Streamline Refinance loans include the EEM option–you can get funds for approved energy-saving improvements similar to the Cash-Out Refinance loan rules mentioned above. And just as with FHA Cash-Out loans, EEM funds cannot be used for any purpose except the approved upgrades to the property.

FHA Streamline refinance loans cannot be used to refinance conventional loans. You must have an existing FHA mortgage in order to apply for an FHA Streamline Refinance.

One reason these mortgages are popular when rates are lower than they are now? They have no FHA-required credit check OR appraisal. The lender is free to require both but overall, these loans are designed to be easier to get, and part of that is due to the fact that no cash is paid to the borrower at closing time.

Joe Wallace - Staff Writer

By Joe Wallace

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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