The Federal Housing Administration (FHA) is a division of the U.S. Department of Housing and Urban Development. The agency offers programs to assist Americans with affordable home ownership by providing lenders with a government-backed guarantee on the loans offered through their programs.
This government-backed guarantee program has made home ownership possible for millions of Americans since its inception in the 1930s. Because many Americans simply cannot afford the 20% down payment required in a conventional mortgage, the programs offered by the FHA offer lower down payment and flexible credit requirements.
In addition to purchase loans, the FHA also offers a number of refinance programs that can benefit home owners looking to cash-out or receive lower rates.
Even if you have less than perfect credit or almost no equity left in you home, you will find that many lenders will help you refinance with an FHA loan. Refinancing an FHA loan is a great way to use the equity you have left in your home. Currently, FHA refinancing can only be used by homeowners who are using their home as their principal residence. Those using properties as rentals will not qualify for an FHA refinance.
If you are facing hardships that prevent you from paying off your loan, there are options available. With most refinancing options, you won’t have to worry about damage to your credit or losing out on equity.
It is important to remember that only homeowners using the property as their primary residence can receive refinancing. There are several options for refinancing with an FHA loan. It is important to educate yourself on the benefits and drawbacks of each refinancing option. You may find some refinance options are easier to qualify for than others.
What is an FHA Cash-Out Refinance?
Those with homes that have increased in value over the years usually find great benefits with the FHA Cash-Out Refinance option. With this option, homeowners have the opportunity to refinance their existing mortgage by borrowing a larger loan amount.
FHA Cash-Out Refinancing comes with the requirement that borrowers will need at least 15% remaining equity in the property based on a new appraisal. Those looking to refinance may borrow up to 85% of equity as they must have at least 15% equity remaining. In the event that you do not have 15% equity, FedHome Loan Centers has a special refinance program in which you can cash-out up to 97% equity.
Allowing you to access money that you have in an illiquid asset, cash-out refinancing can help you cover a number of expenses, including student tuition, medical debt, home improvement, and more.
Cash-out refinancing has a lower minimum credit score requirement than most other loans at 580. A maximum loan-to-value of 85 percent of the home’s current value is required. The homeowner also must have proof of making all monthly payments for the previous 12 months.
What is an FHA Streamline Refinance?
Another FHA refinance option, the FHA Streamline Refinance option gets its name because it allows you to reduce the interest rate on your current home loan quickly. Often, you won’t even need an appraisal. Even those who owe twice what their home is worth can streamline refinance.
FHA Streamline Refinance is one of the most efficient ways of refinancing, as it cuts down on paperwork. Refinancing paperwork can be a big headache that consumes a lot of time and money, so the less of it, the better!
This option eliminates a lot of the documentation that is usually required by banks, including income and employment verification, bank account and credit score verification, and an appraisal of the home.
Homeowners have found this program effective in reducing their FHA mortgage insurance premiums. If you are underwater on your mortgage, then the streamline refinance program is great as it encourages underwater mortgages.
The program is available as a fixed rate or adjustable mortgage. The terms available are usually around 15-to-30 years. Additionally, there’s no FHA prepayment penalty to worry about.
What is an FHA Simple Refinance?
An FHA Simple Refinance is another easy program the lets homeowners refinance from their current FHA Loan into a new one. Whether it’s a fixed-rate loan or an adjusted rate mortgage, you can use this program.
The FHA Simple Refinance option is called that for a reason; it is the most straightforward option. A cash-out option is not offered through this program.
A credit qualification is required from most lenders. This will involve analyzing your income, credit, and assets. Unlike with traditional loans, the requirements are a bit more flexible with this option. Simple Refinance loans are similar to Rate and Term FHA “refi loans” in that there is no cash back to the borrower.
Homebuyers have found this option beneficial in many ways. Firstly, you will likely receive lower monthly payments due to the lower interest rates you receive when refinancing a home. Even if you’re switching from an adjusted rate mortgage to a fixed-rate mortgage, you can receive lower monthly payments with this option.
Help Pay Your Close Costs with Sellers Assist/Sellers Insurance
There is program known as seller assistance that helps buyers pay for a portion of closing costs. Also called seller concessions, sellers assist makes closing costs become a debit to the seller and a credit to the buyer at the closing table.
A seller assist is available with FHA, VA, USDA, and conventional mortgages, though they come with vastly different limits and requirements.
For an FHA loan, the max seller assist rate is 6%, while with a conventional loan it is normally 3%. Conventional loans with a down payment of 10% or more can qualify for a 6% seller assist rate.
Seller assists can also be used to purchase mortgage discount points, which are useful for first time home buyers since the lower rate helps reduce their monthly payments.
Sellers assist cannot be used to finance down payments, but can potentially cover escrow, prepaid taxes, and homeowner’s insurance.
Finance a Fixer-Upper with an FHA 203(k) Loan
If you are looking to buy a fixer-upper, then you may find a 203(k) loan to be a great option. The 203(k) not only helps you finance the home, but it will also help pay for any repairs the home needs.
An inspector will be required to assess the home and make sure it meets all safety and livability standards. If the home is in too much disrepair, then you will likely be unable to receive a loan in the first place.
With fixer-uppers, you will have less competition in a competitive housing market. Plus, they will usually cost less and require a lower down payment. Qualification for a 203(k) can be much easier, since most lenders will accept credit scores as low as 580.
A 203(k) loan comes with many benefits, including the fact that they usually only require a 3.5% down payment. A 203(k) loan will allow you to finance the home, plus up to $30,000 in remodeling costs. It offers a great way to build equity fast!
There are several considerations that come with the 203(k) loan as well. Firstly, the closing process is much longer than with a conventional loan.
There are two types of 203(k) loans and the best one for your situation may depend on the repair work needed on the home. With a Limited 203(k) Mortgage, you can only finance light repair work. You can’t make any major structural changes to the home with this option, like moving load-bearing walls or adding rooms. The 203(k) Standard comes with more flexibility, as you can make just about any changes to the home as needed, except adding luxury items like a pool or tennis courts. You also can’t do projects that will take longer than six months with a 203(k) Standard.
If you are willing to put the work in, a 203(k) loan can get rid of a lot of the headache of home financing.
If HUD determines that the seller has fallen on a hardship, then they may qualify for an FHA short sale. A short sale is a great option if you applied for a loan modification and it was rejected or denied. A short sale provides a much faster option.
Fear of foreclosure damaging your credit can be alleviated a bit with a short sale. Short sales could lessen the impact on your credit and relieve the burden of a buyer’s previous loan.
There are several qualifications a property must meet to qualify or a short sale. The property can only be one-to-four units for it to qualify for a short sale. Properties with five or more units will be denied. The home must have not been purchased as a rental or other type of investment. The seller must be at least 30 days delinquent by closing.
The property must be the seller’s primary residence to qualify for a short sale. There are some exceptions to this, like if a serious illness forced a homeowner to leave the property.
A short sale will usually take around four to six months but can take longer in some cases. It is also important to note that the purchase of a new home of comparable value in the same area will not be eligible for a new FHA loan.
If you choose to have FedHome Loan Centers represent you in selling your home as a short sale, you can stop using our services at any time. FedHome Loan Centers charges no up-front fees to assist you with your short sale. Our partner real estate brokerages will charge a real estate commission but if the bank agrees to a short sale, this is paid for by your lender. FedHome Loan Centers is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change the terms of your mortgage including approving your short sale. It is recommended that you continue to make payments on your mortgage throughout the process. Should you default on your payments, you can see a negative impact to your credit report and your home could be foreclosed upon.
Consider All Your Options
Refinancing your property with an FHA loan can be beneficial in many ways. You can build equity, protect your credit, and remove yourself from certain hardships. It is important to consider all available options when planning on refinancing.
If you are looking to refinance your home or if you have any questions about the refinancing process, give one of our government loan experts a call today at 877-432-5626.