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FHA refinance loans provide homeowners who cannot qualify under conventional loan requirements an opportunity for refinancing their current mortgage loans.

Getting the Most Out of FHA Refinancing

Homeowners may feel stuck between a rock and a hard place when they receive solicitations for "great deals" on refinancing their mortgages, but know that they don't have enough home equity, income, or cash to qualify. FHA guidelines are more lenient than conventional lending requirements, and can provide homeowners the opportunity to take advantage of today's low mortgage rates for refinancing. FHA insures two types of mortgage refinance loans:

  • Streamline refinance: This is a program offered to those whose current mortgage is insured by FHA. If you have more than one loan on the property (subordinate financing), your combined-loan-to-value (CLTV) ratio can be as high as 125%. For those who qualify to do a streamline refinance without an appraisal (you will not be allowed to roll your closing costs into the new loan), a drop in your home's value won't prevent you from refinancing.
  • Refinance from conventional mortgage to FHA mortgage: Borrowers can refinance up to 97.75% of their home's value with a straight rate reduction refinance. Borrowers wanting to refinance with cash-out are limited to 85% of home value. Cash-out refinancing can provide funds for home remodeling or debt consolidation, but it's important to consider the impact of closing costs and mortgage insurance premiums on potential savings. If you're planning to sell your home within a couple of years, you may not have time to break even on the costs of refinancing before realizing intended savings.

With current low mortgage rates, home prices far below recent highs in many areas, and flexible credit qualifying guidelines, FHA refinance mortgage programs offer accessible mortgage financing for homeowners who've suffered the consequences of past unemployment, credit problems, and limited assets. If you're shopping for refinancing, take a moment to shop mortgage quotes for FHA loans.

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.