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Whether your home has lost value and you're having trouble refinancing, or you need money for rehabbing your home, FHA mortgages provide potential solutions.

3 Options for an FHA Refinance Mortgage

Property values have fallen. Your investments are diminished. Money, not to mention credit, is tight. An FHA refinance mortgage can help you obtain lower mortgage rates, provide extra cash for senior homeowners, or finance major home rehabilitation.

Lost Home Value: FHA Allows Higher Loan-to Value (LTV) Refinance

Conventional mortgage lenders typically require that you refinance no more than 80%-90% of your home's current value; this can present a problem if your home has lost equity. FHA approves refinances up to 97.75% of your home's current value (including closing costs); if you also have a home equity loan or line of credit, FHA has no limits on combined loan to value (CLTV) financing as long as your home equity lender agrees to subordinate its interest and your new FHA loan does not exceed 97.5% LTV.

FHA Home Equity Conversion Mortgage Provides Cash Flow

Homeowners 62 and older may benefit from a home equity conversion mortgage (HECM). Also known as a reverse mortgage, an FHA HECM converts home equity into cash; borrowers can choose from a lump sum payment, withdrawals as needed, regular monthly payments, or a combination. FH requires HECM borrowers to see a reverse mortgage counselor. One drawback to this type of mortgage is that it can reduce your heirs' inheritance. Speaking with a financial planner or estate attorney can help with determining if an FHA HECM is right for your situation.

This House Is a Wreck: FHA 203 (k) to the Rescue

If your home requires major renovation, refinancing to an FHA 203 (K) mortgage may allow you to pay off your existing mortgage and finance rehabbing your home. These loans are made based on the estimated appraised value after improvements are made. When work is completed, your home must meet HUD/FHA standards as well as local building code requirements. Borrowers must be owner occupants of 1-to-4 unit buildings, and renovation must meet HUD eligibility requirements.

FHA approved lenders can provide more information and help you find FHA refinance options appropriate to your circumstances.


Karen Lawson
Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.