FHA refinance loans offer a variety of options for the borrower. In many cases you don’t have to have an existing FHA loan in order to refinance into one; with certain types of FHA refinancing you do have to have an FHA loan. There are cash-out refinance loans available, no-cash-out, and streamline refinances available. Do you know which one is right for you?
FHA loan rules found in HUD 4000.1 list the available types of refinancing available, as well as the borrower eligibility requirements, on page 126. It begins by stating:
“FHA insures several different types of refinance transactions:
1. No cash-out refinances of FHA-insured and non FHA-insured Mortgages are designed to pay existing liens. These include: Rate and Term refinance, Simple Refinance, and Streamline Refinance.
2. Cash-out refinances are designed to pull equity out of the Property.
3. Refinances of non FHA-insured Mortgages are available for qualified Borrowers in negative equity positions (Short Refi).
4. Refinances for rehabilitation or repair (Section 203(k)).”
Note that borrowers may, based on the reading of the above, qualify for an FHA short refinance loan even without an existing FHA mortgage. (Speak to your lender about this option and whether or not it is available at that financial institution.)
What are the basic borrower eligibility requirements to refinance? According to HUD 4000.1:
“In order to obtain FHA-insured financing, all Borrowers must meet the eligibility criteria in this section. A party who has a financial interest in the mortgage transaction, such as the seller, builder or real estate agent, may not be a co-Borrower or a Cosigner. Exceptions may be granted when the party with the financial interest is a Family Member.
Each Borrower must provide evidence of their valid SSN to the Mortgagee.” FHA loan rules provide an exception to the Social Security Number rule. “State and local government agencies, Instrumentalities of Government and HUD-approved Nonprofit organizations are not required to provide an SSN”. Tax data including tax returns from previous years will also be required.
There are age requirements for FHA refinance loans which basically amount to rules stating the borrower must be of legal age to make a legally binding commitment to the new loan. State law may have a say in this–check with your loan officer if you aren’t sure.
FICO scores are very important for refinance loan approval. Your FICO score requirements will vary from lender to lender, but FHA loan program minimums are established in HUD 4000.1:
“The Minimum Decision Credit Score (MDCS) refers to the credit score reported on the Borrowers credit report when all reported scores are the same. Where three differing scores are reported, the middle score is the MDCS. Where two differing scores are reported, the MDCS is the lowest score. Where only one score is reported, that score is the MDCS.”
“An MDCS is determined for each Borrower. Where the Mortgage involves multiple Borrowers, the Mortgagee must determine the MDCS for each Borrower, and then select the lowest MDCS for all Borrowers. Where the Mortgage involves multiple Borrowers and one or more of the Borrowers do not have a credit score (non-traditional or insufficient credit), the Mortgagee must select the lowest MDCS of the Borrower(s) with credit score(s).”
FHA loan rules add that a refinance loan applicant, “…is not eligible for FHA-insured financing if the MDCS is less than 500.” We’ll explore more refinance loan requirements in an upcoming blog post.
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