Individuals looking to refinance a FHA loan should first understand the FHA loan guidelines for refinancing mortgages. FHA refinance can be used to convert a 30-year mortgage to a 15-year mortgage and for other purposes.
There are many benefits to refinancing a mortgage including: Home improvements, funding college tuition, or consolidating bills depending on the program you qualify for. The Federal Housing Administration does allow refinancing on FHA loans if certain requirements are met. In some cases closing costs can be included into the new mortgage if the property has built up enough equity.
Streamline Refinancing Program
This refinancing program will enable you to reduce the interest rate, many times without an appraisal. Streamline refinancing requires less paperwork than a traditional refinance so you can start saving more sooner.
To qualify for the Streamline option your mortgage must be an FHA loan; your loan must be in good standing with timely payments for the past 12-months, the home must be your primary residence; you must have owned the property for a minimum of six months before qualifying to refinance, and the refinancing must result in lowering your interest payments.
For individuals with conventional loans who wish to refinance under the FHA Streamline program you must apply just as you were applying for a traditional mortgage – debt-to-income requirements, credit check, employment verification, and other requirements as requested. Moving from a conventional lender to FHA may result in lower interest and lower monthly payments.
FHA Streamline loans do not require an appraisal, but you cannot include your closing costs into your loan if you do not have the property appraised. In this case, all costs must be paid up front.
The downside to the Streamline program is there is no option to receive cash. This is a feasible option for individuals who are not overwhelmed with debt, but could benefit from lower monthly payments.
Cash Out Refinancing Program
The Cash Out refinancing option is advantageous for homeowners with a substance increase in the value of their home since the time of purchase. The homeowner is able to take out a mortgage for more than they currently owe on the home. The first mortgage is paid off and the remainder can be used as needed.