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If you’re interested in any type of FHA refinance loan, you must first answer one very important question: do you qualify?
While you’ll never know for sure until you apply, learning more about qualifications can help you save time and aggravation.
The qualifications for an FHA refinance loan vary by type. Your options include:
- Streamline refinance
- Simple refinance
- Cash-out refinance
- Refinancing into a conventional loan
With all these options available to you, understanding the basics — including both qualifications and available terms and conditions — is critical to making the right decision.
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FHA Streamline Refinance
If you have an existing FHA loan, a streamline refinance allows you to take advantage of lower rates. As the name implies, the process is both quick and efficient.
In addition to reduced credit and underwriting requirements, there’s no employment or income verification. The requirements that you are subject to include:
- You must be refinancing your primary residence
- You’re current on mortgage payments over the last six months
- It’s been a minimum of six months since the first payment due date of your current loan
- It has been a minimum of 210 days (approximately seven months) since closing on your current loan
- The refinance must result in a financial net tangible benefit (NTB) to you, which is generally a shorter term and/or lower monthly payment
FHA Simple Refinance
A simple FHA refinance focuses on the current term and rate of your existing FHA loan. Requirements include:
- Full documentation of employment and income
- A home appraisal
- Credit qualification
- Maximum loan-to-value (LTV) ratio of 97.75 percent
- No current mortgage length requirements (compared to six months with a streamline refinance)
- Any loans being paid with funds from the new loan must be a minimum of 12 months old
There are many benefits of a simple refinance, including but not limited to:
- Opportunity to remove a co-borrower (such as a parent) from the original mortgage
- No financial net tangible benefit requirement
- Potential for a reduced upfront mortgage insurance premium
FHA cash-out refinance
An FHA cash-out refinance is exactly what it sounds like. It’s for both conventional loan borrowers and existing FHA loan borrowers interested in cashing out and moving into a new FHA loan.
By refinancing your existing loan, you gain access to any remaining equity. You can then use this money as you best see fit, such as to repair your property, start a business, or consolidate debt.
The eligibility requirements of a cash-out refinance loan include:
- Owner-occupied for a minimum of 12 months before applying for a loan.
- No late mortgage payments over the past 12 months
- Maximum debt to income ratio of 43 percent
- Maximum loan to value ratio of 80 percent
- Home appraisal
- Monthly insurance payment, along with an upfront premium payment
- Any liens being paid with funds from the new loan must be a minimum of six months old
If you want to refinance while also gaining access to equity in your home — in the form of cash — this is your best option.
Refinancing an FHA Loan into a Conventional Loan
As a current FHA borrower, there’s no requirement that you refinance into another FHA loan product. Paying down your balance and gaining equity in your home may position you to secure a conventional loan.
Even though the interest rate may be slightly higher than what you’re paying, you can eliminate mortgage insurance payments. Comparing these numbers will help you see if you can come out on top financially.
Refinancing a Conventional Loan into an FHA Loan
Are you interested in refinancing your mortgage? Do you have a less than desirable credit score? If you answered yes to both questions, refinancing into an FHA loan could be the answer.
Although you’re required to pay mortgage insurance — possibly for the life of the mortgage — you’re in a position to secure a lower interest rate.
Should You Refinance?
Now that you understand the qualifications to refinance any type of FHA mortgage, it’s time to decide if you should do so. There’s no simple answer to this question, as it varies based on your personal and financial circumstances.
Some of the reasons to consider a refinance include:
- An interest rate that’s greater than current rates
- Your credit score has improved, thus allowing you to secure more favorable loan terms
- Access the equity in your home (cash-out refinance)
- To remove a co-borrower from your loan
- You want to move from an FHA loan to a conventional loan
These aren’t the only reasons to consider a refinance, but they’re among the most common. If you have any reason to believe it could benefit you, it doesn’t cost anything to learn more.
Refinance FAQs
Even if you’ve refinanced a mortgage in the past, you’re likely to have questions about the process, qualifications, benefits, and more. The following are a handful of frequently asked questions associated with FHA refinance loans:
- Is one type of FHA refinance loan better than the rest?
- How long does it take to refinance an FHA loan?
- What are the closing costs associated with refinancing an FHA loan?
- What happens if you don’t meet all the qualifications for an FHA refinance loan?
- Can you apply for an FHA refinance loan online?
- Does it ever make sense to refinance when mortgage rates are higher?
- What happens if you default on an FHA loan? (it’s scary, but you need to prepare for everything)
These questions are great points of discussion between you and your lender. You should feel fully prepared for a refinance before you take the plunge.
My Perfect Mortgage has the tools and expertise to match you with the right lender for your situation.
Summary
The qualifications for an FHA refinance loan vary from one type to the next. The information above will help you determine if now’s the time to learn more about refinancing your current mortgage.
If you’re ready to take the first step in the process, review our refinance guide and then get started.
We’ll walk you through the process of refinancing your current FHA mortgage into one that better suits you, your financial circumstances, and your goals.
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Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
