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By: Mutual of Omaha Mortgage

FHA Refinance FAQs

Here are some frequently asked questions about FHA refinance mortgage loans.

Why Refinance An FHA Loan?

Many home owners who currently have an FHA loan pay private mortgage insurance. This additional payment can also prompt homeowners to seek a rate and term refinance which may eliminate PMI. Refinancing a home can help homeowners to lower their monthly payments by altering the mortgage loan rate or loan term. Also, as home values remain strong and interest rates stay at relatively historic lows, a cash out refinance can help homeowners tap into the equity they established in their home and get access to cash for large purchases and payment obligations such as medical bills, student debt and credit card consolidation.

When Can I Refinance An FHA Loan?

If you currently have an FHA mortgage, depending on the refinance loan programs you choose, you will have to wait between six months to one year from your closing date to be approved for a refinance mortgage loan. Most lenders will not refinance a conventional mortgage that was issued in the past 120-180 days. Speak with a loan originator today to learn when you home can qualify for a refinance.

What Refinance Loan Programs Are Offered By The FHA?

The FHA offers three different refinance loan options to homeowners. The FHA refinance mortgage loan programs are the FHA rate/term refinance, the FHA streamline refinance and the FHA cash out refinance.

FHA Rate/Term Refinance:

The FHA rate/term refinance program, also known as the FHA simple refinance, can help homeowners with moderate to good credit scores who need a higher debt to income ratio to secure a new mortgage rate or term that fits their financial needs. Homeowners can refinance with this FHA loan even if their property is not currently financed by an FHA mortgage. Borrowers can apply for this loan with as little as 3.5% equity in their current home, however PMI will be added to the loan. This loan type does not offer any cash back to the borrower.

FHA Streamline Refinance:

The FHA streamline refinance loan is designed to help homeowners refinance their existing FHA mortgage and secure a lower interest rate more quickly by eliminating some paperwork and documentation review, such as income verification, and has less scrutiny in the process. The FHA streamline refinance loan often does not require an appraisal, which can save a homeowner time and money during the refinance process. There is no minimum equity requirement to be eligible for the FHA streamline refinance loan.

FHA Cash Out Refinance:

The FHA cash out refinance option allows homeowners to replace their current mortgage loan with a loan of a higher amount once the borrower has established at least 20% equity in their property over a minimum period of one year. The difference between the total of your former mortgage loan and your refinance mortgage loan will be offered to the homeowner. Even if your current mortgage is a conventional loan, you can be approved for a cash out refinance loan. Although this loan has more lenient debt-to-income and credit score requirements, it does require mortgage insurance premiums to be paid upfront at the time of closing.

What Are FHA Refinance Loan Requirements?

Depending on the refinance loan program you choose, requirements will vary. Typically, you will need to document that you have made on-time mortgage payments for a minimum of six months prior to the time of application, and that it has been 120 days since the closing of your original mortgage loan. Many FHA refinance loan programs require a minimum credit score of 580-600 and a debt-to-income ratio of 43%. If you are applying for an FHA cash out refinance loan, you will also be required to have at least 20% equity established in your current home. For homeowners who currently have an FHA loan, the FHA streamline refinance has the fewest loan requirements.

How Can I Qualify For An FHA Refinance?

To qualify for an FHA refinance, first you want to prepare documentation confirming you have successfully made all of your mortgage payments on-time for at least six months. Although some FHA refinance loans have credit score requirements as low as 500, most FHA homeowners who refinance in 2019 had a credit score over 600. Depending on the refinance loan you choose, you may be required to submit income verification. Three factors that could disqualify you from FHA refinance loan eligibility are bankruptcy in the last one to two years, foreclosure in the last three years and delinquency on student loans or income taxes.

How Often Can You Refinance An FHA Loan?

For many loan programs, there is no limit to the number of times you can refinance your mortgage as long as you meet the loan eligibility requirements. At a minimum, homeowners will likely have to wait between 120 and 180 days from completing one mortgage loan closing and starting another mortgage loan process.