FHA Loan Requirements for Refinancing
In the conventional mortgage market, there are two types of loan: conventional and FHA loans. While conventional loans have less paperwork, FHA loans have more flexible guidelines to allow for more borrowers to own or refinance a home.
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Features
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An FHA loan is a government loan that allows for borrowers with smaller down payments, or equity, in their home to refinance. Additionally, the credit score requirements for an FHA loan are lower than that of a conventional mortgage.
Function
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A refinance of a mortgage allows a borrower to lower their interest rate, lower their payments, combine debt or some combination of the three. FHA loans allow borrowers to refinance up to 97.75 percent of their home's value to produce the desired results.
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Considerations
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An FHA loan will require an appraisal (with the exception of a streamline refinance, where no additional funds are withdrawn on the loan). FHA appraisals are more complex than conventional appraisals and will require foundation certifications on mobile homes.
Misconceptions
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Just because a borrower qualified for a FHA loan in the past, it does not mean that they will be able to qualify to refinance that same loan. Credit score, debt to income ratios, and loan to value ratios must still be taken into consideration. Additionally, if there have been any late payments on the loan, there could be a waiting period for the refinance.
Benefits
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If a borrower is refinancing from a FHA mortgage to another FHA mortgage and not receiving any cash-out, they can purchase a streamline mortgage. This option allows the borrower to reduce paperwork and avoid having to pay for an appraisal.
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References
- Photo Credit Image by Flickr.com, courtesy of anna carol
