FHA Refinance

Mortgage refinancing has been at an all time high over the last five years due to appreciating home values and low interest rates.  The FHA Refinance program is designed to provide an FHA alternative to the commercial products currently being offered to homeowners with substantial equity in their homes.  The purpose of these loans is to take out a new mortgage that provides cash left over after the old mortgage has been paid off.

The FHA requirements demand that the applicant for a cash-out refinance loan has occupied the premises for at least twelve months, and that payments on the current mortgage have been on time for at least twelve months.

A cash-out refinance loan cannot be more than the FHA conventional loan limit for the area of the house being refinanced.  The other limit to the amount of a refinance loan may come from the lender.  Many of them limit total indebtedness on a property to 80% of its current appraised value.  That means your new mortgage, plus any other loans you have against the property, cannot total more than eighty percent of the home’s worth.

If there is a second mortgage on the property, it must remain subordinate to the new FHA loan.  The homeowner will have to meet the lender’s requirements for ability to pay on both mortgages; generally that means the loan applicant must meet the lender’s cap on mortgage payments in relation to total monthly debt.

All borrowers must meet certain credit requirements on these loans, and any co-signer on the cash out refinancing must be a resident of the property.  These loans are limited to homes with a maximum of two living units.  

The credit requirements are generally those set forth by the lender.  Because lenders have tightened up their requirements recently, it is going to be important to shop for a loan with both a decent interest rate and reasonable credit requirements.  The fact that the loan will be FHA insured will help to some degree with recent credit problems.