FHA Refinance Program

What are the FHA refinance mortgage options?

The FHA has designed several home refinance options there is the regular refinances FHA cash out, FHA no cash out, and the final type is the FHA no cash out which is non-streamlined.

The first type of FHA refinance program i.e. cash out is applicable and good for mortgages sanctioned on 31^st of October 2005. This refinance program propounds the two-level cash out plan. For calculating the maximum mortgage amounts that are permitted, the applicant can opt for any of the two.

If the person is going for a loan up to 95%, he/she is eligible to procure the loan which is limited to 95% of the assessed value on the product that he/she possesses. The property that is kept as the collateral should consist a minimum of two dwelling units. The refinance loan borrower should own the subject property at least 1 year before the previous loan date. The borrower should have completely fulfilled the requirements of the previous loan and settled the payment before the due date. If any other person apart from the borrower accompanies the actual borrower, the former has to reside in the property which is mortgaged as per this refinance option. The person is eligible for LTV cash out of 95% only if the loan has passed through the FHA scorecard.

If the borrower is opting for the loan to value of 85%, the borrower should be the owner of the property which is kept as collateral for a minimum of 12 months. The property should have at least 4 dwelling units. The borrower who is the owner of the property should be residing in it. By multiplying the actual sales price of the property with the loan value which is 85%, the FHA refinance loan borrower can calculate the mortgage amount. The property which is free and clear from any sort liabilities is refinanced as cash out during transactions.

The second type of FHA refinance loans is the ‘no cash out’ refinance or the non-streamlined type. The borrower can equate this format by multiplying the LTV percentage with the appraisal value, excluding the closing costs.

The streamlined FHA refinance loan helps the borrower in lowering the monthly payment of interest and principal amounts. Streamline refinance with appraisal and streamline refinance without appraisal are the two types of streamlined refinancing loans.

FHA Refinance

An FHA refinance loan is a transaction that involves repaying the existing debt on the real estate from the proceeds of a new mortgage taken on the same property. If the borrower has a legal title even though the name of the borrower is not on the original loan, the borrower is still eligible for refinancing the loan. To process a refinance transaction one must consider the following:

A. FHA Maximum Percentage Financing: The most important factor in refinancing is the maximum percentage financing eligibility.  This is governed by the borrowers occupancy status in the property, the utilization of the loan proceeds, and the most important aspect of how and when the purchase of the property was completed. FHA would insure different types of refinance transactions, which includes streamline refinances of the existing FHA – insured mortgages that are made with or without appraisals. The no cash out refinance scheme of the conventional and the FHA insured mortgages are where all the proceeds are to be used to pay the existing liens and the costs, which is associated with the transaction .There are cash out refinances using this method.

B. FHA Maximum Term: The maximum term of the refinance available to the borrower with an appraisal is thirty years. In a streamline refinance as per the section 1 – 12 done without appraisal, it would be limited to the remaining period of the existing mortgage plus twelve years, in such a way that the total period should not exceed over thirty years.

C. Re-Using an FHA Appraisal: The appraisal done by FHA on the existing properties would be valid for six months. This appraisal cannot be re-used during this period for the mortgage of the same property or for which the appraisal was completed and has been closed. The appraisal done for a particular property for the purchase of the property cannot be used subsequently for another refinance, even if the period has not exceeded six months. A Fresh appraisal will have to be ordered and done for every refinance transaction that requires an appraisal.

D. FHA Refinance Authorization: The lender should obtain the Refinance Authorization Number that will be provided by the FHA Connection or functional equivalent authorities to complete all FHA refinances.

E. Skipped Payments are not possible: The lenders will not allow the borrowers to skip any payment in between. The borrower will have to make the payment right on the due date. The monthly mortgage payment check will have to be given when it is due or they could make a settlement with the lender. When the new mortgage numbers are calculated, the lender shall not have any skipped mortgage payments and if for any reason there are any skipped payments, FHA will not allow these skipped payments by the homeowners to be included in the new mortgage amount. For example if a borrower mortgage payment is due for May 1 and wants to close the refinance before the end of that month, the borrower will not be permitted to roll the May mortgage payment  into the new FHA loan amount.