March 8, 2023
How do FHA refinance loan requirements work? There are myths and misconceptions about FHA refinance loans; knowing how they work can help you decide if an FHA refinance loan is right for you.
FHA Loans Are Available From Participating Lenders
You will need to find a lender that participates in the FHA loan program to get an FHA refinance loan. You do not have to use your original lender to refinance into an FHA mortgage. More on that issue below.
FHA Refinance Loan Requirements For Non-FHA Loans
Yes, you can refinance a non-FHA home loan into an FHA mortgage. Refinancing non-FHA loans can be accomplished with FHA cash-out loans or no cash-out loans.
You do not have to use your original lender to refinance from a non-FHA mortgage to FHA; any participating lender willing to work with you can refinance your existing non-FHA mortgage.
However, not all participating lenders offer all FHA loan products. Be sure to ask your lender what refinance options are available. Lender standards will apply in addition to FHA loan minimum requirements.
Borrowers must financially qualify with credit scores, credit history, employment verification, etc. No down payment is required for FHA refinance loans, but a new appraisal and credit check will be part of the loan process.
It’s best to approach refinancing the way you did the original loan application in terms of pulling your credit history/credit scores, etc.
FHA Refinance Loans For Existing FHA Mortgages
When refinancing an existing FHA mortgage loan, you have the option of cash-out or no cash-out FHA refinancing, but there is another option with no FHA-required credit check or appraisal.
Known as the FHA Streamline Refinancing mortgage, this type of refinance loan is designed to lower monthly mortgage payments, interest rates, or get you into a fixed-rate loan and out of an adjustable-rate mortgage (ARM).
This type of refinance loan is best when interest rates are lower than they have been in the past. In 2022 and even in 2023, the FHA Streamline isn’t a realistic option for those who got loans during the previous housing boom.
Non-Streamline Refinancing will require a credit check and appraisal. FHA Streamline loans may have the borrower getting a new credit check/appraisal if the lender’s standards require it.
You may also require a credit check if any add-ons to an FHA Streamline Refinance exceed certain parameters regarding how much higher they push your monthly mortgage payment. Discuss this issue with your loan officer if you need help understanding how add-ons to the loan may affect your monthly payments.
FHA Refinance Loans Require Occupancy
Like FHA mortgages for new purchases, FHA refinance loans have an occupancy requirement as a condition of loan approval. That means you won’t be able to refinance an investment property or a home you do not use as your primary residence.
FHA Refinance Loans Are Available In Fixed Rate AND Adjustable Rate Options
FHA loan applicants may apply for an FHA refinance loan that transitions the borrower out of an adjustable-rate mortgage and into a fixed-rate loan, but there is also an option to refinance to an adjustable-rate mortgage.
Adjustable rate mortgages may be worth considering if you do not plan to own the home for the full term of the mortgage and have plans to sell at some point. However, one of the most important parts in choosing an adjustable rate mortgage? Knowing how the adjustable rate can affect your monthly payments and how much it may cost you over the lifetime of the mortgage.
Having as much information as possible is important when choosing between a fixed-rate loan and an adjustable-rate mortgage.