How to Refinance Your Home With FHA
The Federal Housing Administration (FHA) backs loans to help borrowers meet lenders' requirements. Borrowers who are facing challenges getting approved for conventional financing may want to consider this loan product. Homeowners with steady employment and an average credit rating can usually qualify. Before refinancing into an FHA loan, it helps to understand the criteria and take steps to secure the best interest rate.
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Instructions
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Meet and understand FHA criteria. The benefit of refinancing into an FHA loan is the relaxed criteria. For example, a credit score of 620 or higher is typically acceptable. However, with an FHA loan, you can’t take equity out of the home (no cash-out refinancing). For example, if you owe $200,000 on the home and the market value is $250,000, you can’t take $50,000 in equity out of the home.
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Find the best mortgage rates. As with conventional home loans, FHA rates vary. Find rates by shopping online (see the link in the Resource section for one source of rate information). Choose a credit rating when sorting results. Borrowers with a high credit score have access to lower interest rates.
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Complete an application. Borrowers who already have an FHA loan may qualify for a streamlined refinance. With this refinance, less paperwork is required. Borrowers who are refinancing from conventional loan products are required to provide supporting documentation, such as bank statements, pay stubs and retirement account statements.
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Set up an appraisal of the home. FHA loans typically require an appraisal. The cost for this is about $400. A lender may allow you to roll the expense into closing costs. The lender provides your information to an approved appraiser, and the appraiser contacts you to set up an appraisal date.
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Sign loan documents. After approving and processing the loan, the lender sets up a date to sign documents. Read the documents thoroughly to ensure the interest rate, loan term and other details are accurate.
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Tips & Warnings
Take care of home repairs before scheduling an appraisal. Damage to a home will decrease the appraised value. In some cases, this may interfere with refinancing the home.
Homeowners with delinquent payments on a current mortgage may be disqualified for an FHA mortgage, according to the U.S. Department of Housing and Urban Development.
