FHA Refinance Loan
The FHA Refinance Loan helps home owners with or without a FHA home loan who may use the FHA Refinance Loan to help reduce their payments. There is also the cash out FHA refinance loan, or the FHA Streamline refinance (must have a current FHA Loan) program to consolidate their bills or take cash out of their property or just lower their interest rate and payments.
FHA Refinancing Loan
FHA Refinance loans are used to refinance any non FHA loan to an FHA loan. If a borrower has conventional mortgage they may be able to use the FHA refinance loan to refinance up to a LTV of 97.75% provide that they are not getting any money at closing or paying off anything other the the existing mortgage(s).
Existing Debt: Add together the amount of the existing first lien, any purchase money second mortgage, any junior liens over 12 months old, closing costs, prepaid expenses, borrower paid repairs required by the appraisal, discount points, and then subtract any refund of UFMIP.
If any portion of the funds of an equity line of credit in excess of $1000 was advanced within the past 12 months and was for purposes other than repairs and rehabilitation of the property, the line of credit is not eligible for inclusion in the new mortgage.
The amount of the existing first mortgage may include the interest charged by the servicing lender when the payoff will not likely be received on the first day of the month (as is typically assessed on FHA-insured mortgages). The amount also may include any prepayment penalties assessed on a conventional mortgage.
In determining the existing debt as part of the mortgage amount calculation, the mortgagee may include accrued late charges and escrow shortages.
Prepaid expenses may include the per diem interest to the end of the month on the new loan, hazard insurance premium deposits, monthly mortgage insurance premiums, and any real estate tax deposits needed to establish the escrow account regardless whether the mortgagee refinancing the existing loan is also the servicing lender for that mortgage.
FHA Cash Out Refinances
Cash-out FHA refinance loans on properties owned more than one year prior to the FHA refinance are permitted on owner occupied principal residences only, and are limited to 95% of the appraised value up to a base loan amount of $417,000. If the base loan amount (loan amount prior to adding the MIP premium) is greater than $417,000, then the maximum loan to value is limited to 85%.
A cash-out FHA refinance loan is when a borrower refinances their current mortgage for more than they owe in order to pull out the built up equity that has accrued in the home. The amount a home owner can borrower is limited by the value of the property compared to the loan amount (otherwise known as the loan-to-value or LTV).
The following are basic requirements of a cash-out FHA refinance home loan:
FHA will now require a second appraisal for all cash-out refinances where the LTV, exclusive of the UFMIP, will exceed 85 percent of the appraiser’s estimate of value. This second appraisal requirement applies regardless of the loan amount or the location of the property, i.e., whether the property is in a “declining area” or is not. This second appraisal requirement for cash-out refinances is effective for all case number assignments on or after January 1, 2009
Borrowers who are delinquent or in arrears under the terms and conditions of their current mortgage(s) are not eligible for a cash-out FHA refinance.
The subject property must have been owned by the borrower as his or her principal residence for at least 12 months preceding the date of the loan application. If the borrower has not owned the the property for a minimum of 12 months, the FHA refinanced insured new mortgage is capped at 85 percent LTV. In such cases, the FHA mortgage amount must be calculated using the lesser of the appraised value or the original sales price of the property multiplied by 85%.
If said property is encumbered by a mortgage, the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months, i.e., no payment may have been more than 30 days late and is current for the month due.
Applies to owner occupied properties only.
The property that is security for the FHA refinance mortgage must be a 1- or 2-unit dwelling.
Loan amounts may not exceed the maximum loan limits for the area.
Subordinate financing may remain in place, but subordinate to the FHA refinanced insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the homeowner qualifies for making scheduled payments on all liens.
All borrowers must credit qualify.
Any co-borrower or co-signer being added to the note must be an occupant of the property. Non-occupant owners may not be added in order to meet FHA’s credit underwriting guidelines for the mortgage.
If a homeowner is pursuing a cash-out FHA refinance and the loan balance exclusive of FHA’s upfront mortgage insurance premium will exceed $417,000, the loan-to-value may not exceed 85 percent of the appraiser’s estimate of value.
For those that currently have a FHA home loan and do not qualify for a regular FHA refinance or want to take any cash out or consolidate any bills they may want to consider a FHA Streamline Refinance Home Loan.