Whether you are upside down in your home or are just looking for a way to save money, refinancing your mortgage is perhaps the best way to go. When considering a refinance, many people with a conventional mortgage often ask, “Can I use an FHA to refinance my mortgage?” The answer is “yes, you can use a FHA home loan to refinance your existing mortgage,” however, you must first qualify for an FHA loan in order to use one.
Can I Use an FHA to Refinance My Mortgage?
In order to qualify for a FHA home loan, even if it is just a refinance, you need to meet certain qualifications. One of the requirements is income. While there is no minimum or maximum income parameters, you must be able to afford the monthly payments. According to the FHA, your mortgage payment cannot be more than 31% of your gross monthly income.
Credit also plays a role in an FHA refinancing loan. However, FHA loans look at credit differently than conventional loans. While your overall credit score can play a role in the interest rate you receive, an FHA refinance loan is going to look at your entire credit activity, not just the score. When qualifying for an FHA refinance loan, the pattern of activity on your credit is looked at, not just the score and/or any red flags from the distant or recent past.
FHA Refinancing Terms
If applying for an FHA refinancing loan, you will want to know about the different terms before you apply so that you can make the best choice possible. An FHA refinancing loan is not the same as the FHA HOPE for Homeowners programs. An FHA refinancing loan is designed to help current home owners lower their monthly payments or prevent homeowners from going into default. An FHA refinance loan cannot be used by homeowners who are currently in default or who are in the midst of the foreclosure process.
There are different types of FHA refinancing loans; each type of loan has its own terms and requirements. With an FHA refinance loan you can qualify for a cash-out refinance where the entire loan amount is up to 85% or 95% of the home’s appraised value.
Before you can apply for a cash-out refinance though you must have owned the home for one year and you must have the home appraised when applying for the refinance.
Types of FHA Refinance
Your other options are a no cash-out FHA refinance or a Streamline FHA refinance loan. The no cash-out is pretty straight forward: you are simply refinancing to lower the interest rate, but are not interested in tapping into your home’s equity.
The Streamline refinance can be done in one of two ways: either with or without an appraisal. The no-appraisal route requires homeowners to pay closing costs whereas the appraisal route allows you to use a portion of the loan to cover your closing costs.
Have any more mortgage or refinancing questions? Check out our other FHA blog post!