by Tom Murphy
NMLS # 662141
Home Services Lending
For people who have an FHA loan, you know that they have many advantages. You may be able to qualify of for a loan with an average credit score. FHA guidelines only require a 3.5% down payment. But did you know that you can refinance your FHA mortgage quite easily?
FHA makes refinancing a mortgage a very easy process. This can be a huge help for people who are having financial difficulties, and have trouble making their monthly payments.
By refinancing your mortgage, you will be able to potentially reduce your monthly payment by anywhere from $50 to $100 or even more in some circumstances.
Before we get ahead of ourselves, it’s important to determine your eligibility and whether or not the proposed loan benefits your present and future financial goals. If you are thinking about refinancing your FHA mortgage, below is more information so that you can make a good decision:
What Is It?
The FHA Streamline Refinance program is reserved for people who have an FHA mortgage, and is one of the fastest and easiest ways to get a refinance done in the US.
What Are Some of the Advantages of the FHA Streamline Refinance? The reason that so many FHA loan holders decide to refinance their FHA mortgage is that it is so much easier to do than with conventional mortgages. The Federal Housing Administration really delivered an user-friendly mortgage when they created the “streamline refinance.” Mortgage companies consistently receive positive feedback when it comes to the streamline. Let’s take a closer look at some of the biggest advantages of the FHA streamline:
You do not need a home appraisal in most instances. If you are under water on your mortgage, one of the biggest problems with refinancing in most cases is that no regular lender will let you refinance if you owe more on the home than it is worth.
With an FHA refinance, the FHA will allow you to use your old appraisal so that you can refinance it into a lower rate and payment. In fact, even if you owe twice what the home is worth, you will be able to refinance your FHA loan in many cases.
No Job or Income Verification
If you are having problems with your income and job situation, you probably are having problems paying your mortgage. This is why you would want to refinance. But most lenders will want to see what your employment status is and what your current income is before allowing you to refinance.
The FHA refinance program allows you to get a new loan without having your income or job checked again. So, even if your income has been reduced, you will be able to probably refinance your loan.
Flexible Credit Standards
Probably the biggest advantage for many FHA borrowers is that the FHA does not have any set standards for credit score to qualify for refinancing. So, if your credit has been damaged by late payments from a job loss, you will not necessarily be barred from refinancing.
FHA does not set any particular standard in this regard. However, you should be aware that different FHA-approved lenders may have different standards about their credit requirements for a loan.
You can learn more about new opportunities for refinancing with a checkered credit history in my article, How to Qualify for a Bad Credit Mortgage. Some may have a higher standard than others.
Some lenders may have a 640 or 680 credit score requirement, but for others, it could be 620. If you are finding that you are having problems getting approved with one lender due to a low credit score, try a different lender.
Generally, having an average or low credit score should not completely bar you from getting a FHA mortgage refinanced. In some cases, you may be able to qualify for a refinance with FHA with a 500 credit score. Now that you understand the general features of an FHA Streamline Refinance, here are some of the requirements that you must meet to qualify:
- Good payment history for the past three months. The main goal of allowing FHA loan holders to refinance is that it wants to reduce the default risk of its entire loan pool. Therefore, you need to have a good payment history on your loan going back three months, or 90 days. If you have a late payment in the last 90 days, you will not be able to refinance until you have a good payment history for three straight payments?
- Waiting period required between refinances. FHA requires each borrower to make at least six mortgage payments on their FHA loan before they refinance out of it.
- There must be a clear financial purpose to the refinance. This means that you have to be able to prove that there is a ‘net tangible benefit’ of the refinance. This specifically means that you have to have at least a .5% reduction in your interest rate for the loan to qualify for a refinance.
- The loan balance cannot increase to cover closing costs. FHA rules prohibit you from rolling the closing costs into the loan if it increases the loan balance.
A major plus of having a government insured lien is that doing a refinance is so much easier than with many other regular loans. If you are having any type of financial problem, you would usually discover that a refinance is very hard to do. But the FHA continues to make it easier for many homeowners to refinance.
FHA has made this its policy because it wants to reduce the number of loans that default in its portfolio. By allowing more loan holders to refinance, there are fewer defaults, which improves FHA’s bottom line over the long term. If you are having trouble making your mortgage payments and you have an FHA insured mortgage, you should consider trying an FHA Streamline Refinance today. Visit HUD’s website for updated FHA standards and guidelines.