The Federal Housing Administration (FHA) offers 7 refinance programs.
- The Rate and/or Term
- Simple RefinanceStreamline
- Credit QualifyingStreamline
- Non-Credit Qualifying,
- Cash-Out Program,
- Standard Rehab 203(k) & the Limited Rehab 203(k).
FHA loan refinance options:FHA Rate and or Term Refinance Program - Can include closing costs and subordinate loans (2nd, 3rd, etc.)
- FHA Simple Refinance - Similar to Rate and/or Term Refinance Program, but no subordinate liens
- FHA Streamline Refinance
--- Credit Qualifying Program
--- Non-Credit Qualifying - does not require credit, employment, debt to income, and asset qualification
- FHA refinance with cash out - limited to 80% of value
- 203(k) Refinance and Rehabilitation Program - Refinance plus rehab
---Standard 203(k) Mortgage
---Limited 203(k) - up to $35,000 in expenses can be included
1. The FHA rate and or term refinance program
The Rate and or Term Refinance Program is available to homeowners who wish to refinance their existing mortgage. The Rate/Term Refinance Program is open to homeowners with an existing FHA mortgage and non-FHA mortgage.
Second mortgages can be included with the rate/term refinance, provided the unpaid principal balance of any junior liens over 12 months old as of the date of the existing mortgage payoff.
If the balance or any portion of an equity line of credit in excess of $1,000 was advanced within the past 12 months and was for purposes other than repairs and rehabilitation of the property, that portion above and beyond $1,000 of the line of credit is not eligible for inclusion in the new Mortgage.
Settlement costs can be rolled into the rate/term refinance option (i.e. title insurance, transfer tax, recordation, and excise taxes). The equity requirement is only 2.5% for the new mortgage. That means after rolling in the 1st, 2nd (if applicable), closing costs, and new escrow, the total loan amount can be as high as 97.75% of the appraised value.
The Rate/Term Refinance Program refinance option requires credit, employment, debt to income, and asset qualification. A home appraisal is required. In short, you and your home must qualify.
2. The FHA simple refinance
The FHA Simple Refinance is similar to the Rate/Term refinance program, however, the Simple Refinance program does not allow any 2nd or 3rd mortgages to be included with the new loan amount.
The Simple Refinance program does allow the closing costs and escrow requirements, to be included in the new loan. The Simple Refinance option requires credit, employment, debt to income, and asset qualification. A home appraisal is required. The existing mortgage must be an FHA mortgage.
3. The FHA streamline refinance
The Streamline Refinance is a very popular refinance choice for credit and/or appraisal challenged borrowers. The FHA Streamline Refinance can be either Non-Credit Qualifying or Credit Qualifying.
The existing mortgage must be an FHA mortgage. Second and third liens CANNOT be rolled into the new mortgage. Existing subordinate financing can remain in place, provided, that the subordinated lien(s) are re-subordinated to the Streamline Refinance. Some exceptions are available.
There is no maximum combined loan to value (CLTV) with streamline loans. Appraisals are not required for FHA Streamline loans.
1. Streamline Refinance Credit Qualifying Program is required when:
- A change in the mortgage term will result in a more than 20% increase in the mortgage payment.
- When the due-on-sale clause is triggered by the deletion of a borrower or borrowers
- Following the assumption of a mortgage that was originated less than six months ago and does not contain restrictions (such as a due-on-sale clause) limiting the assumption to only creditworthy borrowers, or
- Following the assumption of a mortgage that was originated less than six months ago and does not contain restrictions (such as a due-on-sale clause) limiting the assumption to only creditworthy borrowers, or following the assumption of a mortgage that was originated after the assumption of a mortgage that happened during the preceding six months and did not trigger the transferability limitation (that is, the due-on-sale clause), such as a property transfer arising from a divorce order or through devise or descent.
SOURCE: HUD 4155.1 Chapter 6, Section C
2. The Non-Credit Qualifying loan does not require credit, employment, debt to income, and asset qualification. A home appraisal is NOT required! The home must have been owned for at least six months.
For the six months prior to case number [new loan number] assignment, the Borrower must have paid all Mortgage Payments for all Mortgages on the subject Property within the month due, with no more than one 30-Day late payment for all Mortgages on the subject Property.
The Borrower must have paid all mortgage payments secured by the subject property during the month due previous to the mortgage Disbursement.
The Streamline program (credit qualifying and non-credit qualifying) requires the new mortgage to meet the "net tangible benefit" test. This requirement was established by the FHA to make sure that a refinance was actually beneficial to the borrower. The maximum amortization term is limited to the lesser of:
- The remaining amortization period of the existing Mortgage plus 12 years; or
4. FHA refinance with cash out
Effective September 1, 2019, HUD/FHA lowered the Cash Out lending limit to 80% from 85% of the appraised value (Mortgagee Letter 2019-11).
What does this mean?
In short, the rule change means that you must have 20% equity in the home after the settlement due to the rule change.
Lending Limit Percentage
Less Closing Costs (example)
Cash received at settlement
FHA Cash Out Refinance is used to payoff a first, second, and or third mortgage, or to obtain cash at closing.
The maximum loan amount is the lesser of 80% of the appraised value of the home or the FHA lending limit for the county where the home is located. This means that the 1st mortgage, 2nd, and other liens (if applicable), the sum of the closing costs, escrow requirements, and cash received at settlement cannot exceed 80% of the appraised value, or the maximum lending limit, whichever is less.
Only owner-occupied principal residences are only permitted on the cash out refinance loan.
The subject property must have been owned and occupied by the Borrower as the principal residence for the 12 months prior to the date of the case number (FHA loan number) assignment. There is an exception in the case of inheritance.
Payment History Requirements for Cash Out Refinance
The Borrower must have made all mortgage payments for all mortgages on the subject property within the month due for the six months preceding case number [new loan number] assignment, with no more than one 30-day late payment for all mortgages on the subject property.
During the month prior to the mortgage disbursement, the borrower must have made all mortgage payments guaranteed by the subject property.
SOURCE: FHA Handbook 4000.1 417 Effective Date: 09/14/2015 | Last Revised: 12/30/2016
5. FHA 203k streamline refinance guidelines
Did you know that you can payoff your existing mortgage and subordinate liens (if applicable), roll in the closing costs and escrow amounts, and include "extra" money for home improvements? The 203(k) loan program does just that. There are two refinance options.
1. The Standard 203(k) Mortgage may be used for repairs and/or remodeling. There is a minimum repair cost of $5,000 and the use of a 203(k) Consultant is required.
2. The Limited 203(k) option may only be used for non-structural repairs and/or minor remodeling. The Limited 203(k) does not require the use of a 203(k) Consultant, but a Consultant may be used. The total rehabilitation cost must not exceed $35,000. There is no minimum rehabilitation cost.
Limited 203(k) Eligible Improvements
(1) Types of Improvements
Eligible improvement types include but are not limited to:
- linking to municipal water and sewage systems;
- enhance accessibility for people with impairments
- removing health and safety risks that would be in violation of HUD's MPR;
- removing obsolescence;
- replacing the refrigerator, stove, oven, dishwasher, built-in microwave oven, and washer/dryer;
- putting up or restoring fences, pathways, and driveways;
- putting up smoke detectors
- adding, replacing, or repairing outdoor decks, patios, and porches; and paying for lead-based paint stabilization expenses (in excess of what is paid for by the government).
- HUD when selling REO homes) if the structure was constructed before 1978 in compliance with the single-family mortgage insurance-lead-based paint regulation and The Renovation, Repair, and Painting Rules of the Environmental Protection Agency.
- implementing modifications for better functionality and modernization
- developing advances in energy conservation;
- fixing or installing new roofs, as long as the structural integrity of the structure is not jeopardized by the work; siding; gutters; and downspouts;
- fixing or eliminating a swimming pool in the ground;
- repair or replacement of wells and/or septic systems
- repairing/replacing plumbing, heating, air conditioning, and electrical systems