Relaxed terms and low-interest rates make the FHA lending program a favorite choice for many American homebuyers. That explains why the FHA home refinance option is one of the most popular among homeowners. As long as you are eligible, even if you don’t have an existing FHA mortgage, you can refinance your current mortgage to a FHA loan and start saving money today.

These loans are backed by the government through the Federal Housing Administration (FHA), which allows lenders to offer customer friendly terms. Are you ready to take advantage of this program?

FHA Refinance Options

Depending on what you’re looking for, you can choose either of the two FHA refinance options.

  1. FHA streamline refinance
    Make the process of refinancing quicker with a streamline finance. You get the same benefits of reducing your interest rate, and the ability to change the terms of your loan, but much faster. It is known as streamlined refinance because it takes away a lot of the requirements and documentation that is associated with refinancing. This makes the whole refinance process more time and cost effective.Are FHA streamline refinance a good idea? If you are eligible, yes it is a good idea. By lowering your interest rates, you will reduce your monthly payments and save money. Getting this approved quicker, in a streamlined way, means that you’ll be able to start saving sooner.
  2. FHA refinance with cash out
    The cash out option allows you to lower your interest rates and also get some money in the process. If you are cash strapped but have built-up equity in your home, you can refinance it for more than what you owe. The bigger loan is used to pay off your current one, and then you pocket the rest of the cash.For example, if your existing mortgage has a principal balance of $100,000 but your house’s appraised value is $150,000, you can do a FHA cash out refinance and take out $130,000. From that, you will use $100,000 to pay off the current mortgage and then pocket $30,000. Not a bad deal for homeowners who need cash. You can only borrow up to 85% of your LTV, or 85% of your home’s value.

Benefits of FHA Refinance

– The loans are backed by the Federal Government through the FHA. That gives FHA refinance lenders the confidence to offer attractive and flexible terms.

  • The FHA allows you to make down payments as low as 3.5%. You can use your own savings, grants or gifts to make the payment.
  • You can do FHA refinance even if you have less than perfect credit. Most lenders will streamline the approval process if your credit score is 580 or higher.
  • You can refinance FHA to conventional loan and vice versa. The only requirement is eligibility.
  • You can get your hands on a no cost loan. In that case, either the seller or lender will cover the closing costs.
  • The FHA cash out option allows borrowers to get quick and easy cash for expenses such as repairs.
  • FHA streamline refinance banks waive most steps involved in a typical refinance process. That makes FHA refinancing easier to qualify and process.

FHA Refinance Eligibility

These are some things FHA refinance companies look at before they declare if you’re eligible.

Payment history: you should not have more than one late mortgage payment within the last 12 months.

Property ownership: you should have owned the house for at least 6 months and lived in it as your primary residence.

Mortgage obligations: your total monthly mortgage payments (for the new mortgage) should not eat up more than 41% of your monthly income.

All in all, FHA refinance qualifications are among the least stringent, now more than ever, as the government tries to offer affordable housing to low and very low-income earners.

FHA Refinance Requirements

Credit score: while there is no official minimum credit score, many lenders have their own guidelines. With a FICO score of 580 and above, the process should be faster. Anything below that might require a 10% down payment, especially if you are doing a cash out refinance. For FHA streamline refinance most lenders don’t even check your credit score. Instead, they use your payment history to gauge your ability.

Appraisal: you can get an FHA refinance without appraisal if you’re applying for a streamline refi. However, for a cash out refinance, an appraisal might be necessary. You can get up to 85% of your house’s appraised value.

Closing costs: FHA streamline refinance fees cannot be covered using the new loan. The FHA requires that the new mortgage through your streamline refi is not more than the cost of your principle amount and insurance.

This means you will have to pay the FHA refinancing closing cost yourself, transfer them to your lender, or roll them over into the new loan. If you are doing a cash out refi, you can use some of the remaining cash to cover the costs.

Income: employment and income verification are not needed with an FHA streamline refinance but may be asked for if you’re applying for a cash out refinance. You’ll most likely be asked to show two recent paycheck stubs, your last two tax returns, and your last two W2 forms.

Best Time to Do FHA Refinance

Timing is everything if you really want to lower your interest rates and decrease your monthly payments. Here is a simple guide that should tell you when to refinance FHA mortgages:

  • When interest rates drop by more than 1%
  • If you are planning to live in the house for 3 or more years
  • If you are switching from fixed-rate mortgage (FRM) to an adjustable-rate mortgage (ARM) or vice versa.
  • When lenders relax FHA loan lending terms.

Be sure to get as many FHA streamline refinance quotes as possible so that you get the best deal in the market. Get started today with TJC Mortgage. We know it all starts with a home loan but doesn’t end there. Let us work together to see if refinancing makes sense for your situation.

Disclosure: Even though a lower interest rate can have a profound effect on monthly payments and potentially save you thousands of dollars per year, the results of such refinancing may result in higher total finance charges over the life of the loan.