December 23, 2015
When the new FHA single family home loan rulebook , HUD 4000.1, was released, it contained updates, revisions, restatements, and clarifications of FHA home loan policy. We’ve been examining critical areas of HUD 4000.1 and discussing them here.
One of those critical areas involves the FHA loan rules for refinance loans. What does HUD 4000.1 say about refinancing in general? Let’s begin with how the FHA now defines refinance loan transactions:
“A Refinance Transaction is used to pay off the existing debt or to withdraw equity from the Property with the proceeds of a new Mortgage for a Borrower with legal title to the subject Property.”
Then there are the types of refinance loan transactions as described in HUD 4000.1, starting with cash-out loans:
“(1) Cash-Out
A Cash-Out Refinance is a refinance of any Mortgage or a withdrawal of equity where no Mortgage currently exists, in which the mortgage proceeds are not limited to specific purposes.”
FHA refinance loan borrowers also have the option to apply for a no-cash-out refinance loan:
“(2) No Cash-Out
A No Cash-Out Refinance is a refinance of any Mortgage in which the mortgage proceeds are limited to the purpose of extinguishing the existing debt and costs associated with the transaction. FHA offers three types of no cash-out refinances:
(a) Rate and Term
Rate and Term refers to a no cash-out refinance of any Mortgage in which all proceeds are used to pay existing mortgage liens on the subject Property and costs associated with the transaction.
(b) Simple Refinance
Simple Refinance refers to a no cash-out refinance of an existing FHA-insured Mortgage in which all proceeds are used to pay the existing FHA-insured mortgage lien on the subject Property and costs associated with the transaction.
(c) Streamline Refinance
Streamline Refinance refers to the refinance of an existing FHA-insured Mortgage requiring limited Borrower credit documentation and underwriting.”
HUD 4000.1 states that two different streamline options–credit qualifying and non-credit qualifying– are available, but it would be at the lender’s discretion to allow a no-credit qualifying type of streamline refinance loan.
There are some other types of FHA refinance loan options including rehab loans and short refinancing which we will cover in a future blog post.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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