FHA Refinance Mortgage

Learn about the qualifications and benefits of a FHA Refinance Home Loan

FHA Home Refinance Loan Programs have become a popular refinance choice for many homeowners. Although there are some similarities between FHA home loans and Conventional home loans, there are also some differences. We will dig into the nuts and bolts of FHA home loans so that you can decide whether an FHA refinance mortgage is the best option for you.

What are FHA Loans?

Many have heard the term “FHA”, but did you know that an FHA loan is one of the most popular ways to refinance an existing mortgage. The Federal Housing Administration (FHA) is a government corporation established under the National Housing Act of 1934 to improve housing standards and conditions. FHA does not actually fund mortgages, but instead, insures mortgage lenders writing FHA loans against default. Today, FHA plays a major role in financing for minority borrowers, first time home buyers, borrowers with less than perfect credit, and borrowers that need to finance near 100% of their home’s value. FHA loans continue to grow in popularity for home buyers and those seeking to refinance.

FHA Home Loans: Credit Scores
and Credit Reports

FHA loans can be very beneficial to those wanting to refinance with poor credit scores. FHA loans are not really score driven, but credit history is taken into account. A borrower who has continuously demonstrated a history of slow payments, judgments and delinquent accounts will have a greater chance of not being approved. But....

An overall picture of credit history will be viewed even though there have been “blips” or isolated negative credit occurrences. If a borrower has maintained good payment history for a period of time after the difficulty and a good payment history prior, then the borrower can submit a letter of explanation for the rough spot and include any supporting documentation.

Yes, the FHA underwriter will listen to an individual's story and give much consideration to the borrower's explanation letter and supporting documentation toward issuing a refinance loan approval. FHA loans are underwritten more personally than a conventional refinance mortgage.

Any minor derogatory credit two or more years old does not necessarily require an explanation.

With FHA loans, a refinance borrower with a poor credit score of say 580, can be qualified for the same mortgage rate as an individual applying for a conventional loan with a 700 credit score. This is a HUGE benefit of FHA loans.

Collections/Judgments: Judgments must be paid off for FHA loans. The only exception is if the borrower and creditor have entered into an agreement to make regular-timely payments and proof is submitted that payments are being made according to the agreement.

Collections do not need to be paid off, but will need to be explained in writing in most cases.

Bankruptcy Chapter 7: Chapter 7 BK's are allowed with FHA loans, but must be 24 months from date of discharge and borrower must have re-established good credit.

Bankruptcy Chapter 13: Chapter 13 BK's are allowed with FHA loans, but must be at least 12 months into repayment and all payments have been made on time. Borrower must receive permission from the court.

Foreclosure: Must be at least 3 years after foreclosure and must be the result of a documented extenuating circumstance for FHA loans.

Extenuating Circumstance: FHA loans do consider extenuating circumstances that result in a negative credit occurrence, such as the serious illness of a wage earner.

*Current mortgage must be current with no late payments in past 12 months to qualify for FHA loans.

FHA Home Loans Income Requirement

FHA loans require a debt-to-income ratio (DTI) of .43 or lower for qualification in most cases. The DTI ratio is calculated by dividing your Total Monthly Household Expenses by your Total Monthly Gross Income.

Your total household expenses are found by adding all of your monthly expenses from your credit report (such as credit card payments, auto payments, etc) plus your monthly property taxes, monthly homeowner's insurance, and proposed new monthly mortgage payment.

For those that are self-employed, FHA does not allow “Stated Income” mortgage programs. You will need to qualify for the DTI by using the Adjusted Gross Income figure from your tax return. Divide that number by 12, which results in your total monthly gross income for the DTI calculation. Self-Employed individuals need to have been in business a minimum of 2 years and submit full tax returns.

Compensating Factors: FHA does take into consideration, compensating factors, for those that exceed the debt ratio maximum, such as:

• Borrower is currently paying equal to or over the amount of the new mortgage payment
• Substantial savings or conservative use of credit
• Minimal increase in housing payment
• 3 months reserves in savings after closing
• Verified increase in earnings

FHA Refinance Mortgage Rates

FHA loan refinance rates are very comparable to conventional prime mortgage rates. Again, this is HUGE for borrowers with lower credits scores or individuals that need to refinance most of the equity in their home.

We have access to the most competitive FHA Home Loan Rates in the country...and now... So Do You! ..... Simply request your Free FHA Loans Rate Quote for great results!

How Much Can I Borrow With
An FHA Refinance?

FHA home loans allow a Cash-Out Refinance at up to 97% of your home’s value. This is another HUGE benefit for those with less than perfect credit that need to refinance most of the equity in their home.

Eligible Properties:

• Must be Primary Residence
• Single Family to 2 Unit Residences
• Approved Condos
• PUDS
• Modular and Manufactured

What is the FHA Maximum
Loan Size Allowed?

Mortgage limits for FHA loans were increased in early 2008. Previously, loan limits for FHA-insured mortgage loans were no more than $362,790. Now mortgages of up to $729,750 will qualify for FHA insurance.

FHA sets the mortgage loan limits by the county where you reside, and has affected 71 Metropolitan areas, as well as 21 counties outside those areas.

This is good news for Jumbo Loan refinance shoppers. Although, conventional Jumbo mortgage loan limits have also increased, many borrowers are still finding better mortgage rates with FHA loan refinance programs.

FHA Loans Mortgage Insurance (MIP)

FHA insures mortgage lenders against loss in the event that borrowers default on their loans. In this way, FHA encourages mortgage lenders to make refinance loans that they might otherwise view as too risky. In order to protect against this risk and also to keep FHA loans as a sustaining program, an Upfront Mortgage Premium and monthly Mortgage Insurance is added to the mortgage.

Upfront Mortgage Insurance Premium (UFMIP): The UFMIP fee is 1.5% of the loan amount, which can be rolled into the mortgage or paid in one lump sum. For example, if the loan amount is $100,000, the UFMIP is $1,500 (100,000 x .015 = $1,500).

Monthly Mortgage Insurance (MIP): The MIP is equal to .5% of the loan amount paid on a monthly basis. For example, if the total loan amount is $100,000, the MIP is $41.67 per month (100,000 x .005 = $500 divided by 12 = $41.67).

FHA’s MIP will automatically be cancelled once the unpaid mortgage principal balance, excluding the upfront mortgage premium, reaches 78% of the appraised value of the home. You are allowed to make extra payments toward the principal, but the MIP must be in force for at least 5 years.

FHA Home Loans Appraisal

There was a time when real estate agents and mortgage brokers feared having an FHA appraisal done because the requirements were much stricter than a conventional appraisal.

FHA has made some major changes to their appraisal requirements. In fact, there is very little difference between an FHA Appraisal and a Conventional Appraisal today.

The biggest difference between the two is that the FHA Appraisal will typically cost between $75 and $100 more than a Conventional Appraisal for a home loan refinance.

Is There Really a Big Difference in FHA Refinance Rates Between Lenders?

Simply put... YES!! ... A number of factors go into the FHA home loan rate that you are ultimately quoted for your refinance. Overhead, marketing, use of (or lack of) technology, bank and investor alignment, direct or broker lender status, business strategy, volume, and mark-up, among others. This is not to mention closing costs, which vary widely among refinance lenders originating FHA loans.

There is a difference and you can save thousands by choosing the right refinance lender for FHA home loans.

Having access to the biggest refinance lenders and most diverse mortgage investors allows us to pass along the mortgage rate savings to you. If you are looking to do an FHA Refinance and want to see the current best rate and lowest fee FHA loans on the refinance market, we encourage you to get a Free FHA Loans Rate Quote with us now.

Is There Really a Big Difference in
FHA Service Between Lenders?

Again… YES!!! .... The origination and processing of FHA home loans is a specialized segment within the mortgage industry. Choosing the wrong refinance lender can delay your closing for months, possibly even get your FHA loan denied!

If you are interested in, or downright serious about checking out FHA home loans for your refinance, we strongly suggest that you get a Free FHA Loans Rate Quote with us today!

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