Refinancing with an FHA loan can help homeowners with little credit and home equity. FHA guidelines are more lenient and are designed for accommodating credit challenged borrowers.
FHA Refinance Options Assist Equity and Credit Challenged Homeowners
Now that conventional mortgage lenders are resuming more conservative lending practices, FHA loans are meeting the needs of borrowers with little cash, credit problems, and in the case of refinance loans, little home equity.
FHA Mortgages Offer Solution for Refinance with Little Home Equity
FHA loans also offer lenient credit requirements that forgive past financial mistakes under certain circumstances. Here are general requirements for an FHA refinance of a non-FHA mortgage with no cash out:
- You don't need to refinance for more than the FHA mortgage loan limit applicable in your county. (Click the link to find your county's FHA mortgage loan limit.)
- For refinancing conventional or other non-FHA mortgages with no cash out, you can borrower the lesser of 97.75% of your home's current value as determined by an FHA-approved appraiser, or
- 100% of your home's current appraised value including any financed upfront mortgage insurance premium (UFMIP).
- Your mortgage loan must be kept current throughout the refinancing process.
- You may not receive more than $500 back at closing.
- At least one borrower of record occupies the property; you may refinance with non-occupant co-borrowers if needed.
If you have enough home equity, you may qualify for a cash out refinance.
FHA Guidelines for Cash-Out Refinance
- FHA requirements for cash out refinancing are mroe strict than for standard refinancing:
- All borrowers on a cash-out refinance must be owner occupants.
- You may not be delinquent on your mortgage payments
- The loan-to-value (LTV) may not exceed 85%, and may be lower if you've owned your home for less than one year. This includes the combined total of your refinance mortgage amount and any subordinate financing including home equity loans and lines of credit.
- You may not have been late on existing mortgage payments in the preceding 12 months.
- Second lien-holders must agree to remain subordinate to the FHA mortgage refinance.
These guidelines are effective as of June, 2009. Contact your mortgage lender, or FHA approved mortgage lenders for more information about FHA refinance guidelines and mortgage loans.
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.