FHA has several types of loans that allow borrowers to refinance their home. Borrowers can refinance a current FHA loan with an FHA Streamline Refinance, refinance a different type of home loan with an FHA Rate and Term Refinance or use the FHA Cash Out Refinance to take cash out of their home.
The FHA Streamline loan allows borrowers to refinance their existing FHA loan to reduce the monthly payments with relaxed loan requirements. Most FHA Streamline Refinances do not require an appraisal so this loan is very attractive to many FHA borrowers who are upside down with their current FHA mortgage. FHA wants to the borrower to be able to have the lowest interest rate and payment possible. FHA requires the refinance to save at least 5% on their monthly mortgage payment(PITIMI). Refinancing from a 30 year to a 15 year mortgage is not a benefit to borrower in the eyes of FHA under the FHA Streamline loan. The FHA Streamline is the only FHA loan that will allow borrowers to refinance a 2nd home and investment properties that currently have an FHA loan on them. FHA Streamline loans normally require reduced documentation for the loan process. The closing costs for the loan cannot be “rolled” into the loan. Most lenders will pay the closing cost (slightly higher interest rate) for the borrower or the borrower can bring these closing costs to closing.
The FHA Rate and Term refinance loan is designed to refinance and existing home loan into a FHA loan. Borrower can refinance any type of home loan to a FHA loan and include the closing costs and pre-paid items for the home loan. The loan is limited to 97.5% Loan To Value based on a new FHA appraisal. These loans require full documentation. The lender will look at the borrowers income, assets and credit. The borrower must live in the property as their primary home.
The FHA Cash Out loan lets a borrower take up to 85% of their homes equity to pay off debt, 2nd mortgages, or just cash in hand. These loan are only available on primary residence properties only. They do not have to have an FHA loan on the property to do an FHA Cash Out loan. This is a full documentation loan and the lender will require a new FHA appraisal, income, assets and credit.
FHA does not have a minimum credit score for FHA loans. Each lender can have their own minimum credit score. FHA does require that borrowers who have less than a 620 credit score to have a Debt to Income Ratio that does not exceed 43%.