FHA refinance is popular with borrowers as the FHA is less strict than banks are, has better interest rates and requires a lower down payment.
The FHA, or Federal Housing Administration, offers refinance options to homeowners who want to release some of the equity, or money, in their property, and use it towards something else.
To qualify for FHA refinance, your home needs to be your primary residence.
Here’s an overview of the 4 types of refinance loans that FHA offers, and what they mean for you.
1. Streamline Refinance
This program is a fast way to lower your monthly repayments by lowering your current interest rates.
It’s quick because it doesn’t require much paperwork from your mortgage lender.
The program is for existing FHA borrowers, and you’ll need to have paid your mortgage on time each month for the last year.
You actually need to benefit from streamlining. If refinancing helps you make your mortgage payments, for example, then that’s okay.
The FHA won’t let you add any upfront costs to the term of your loan, though; those will need to be paid separately by you.
2. Cash-Out Refinance
This program is for new and current FHA customers.
It’s great for homeowners that want to release cash from their homes, especially homes that have increased in value since they bought them.
The amount you can borrow depends on the amount of equity that’s accrued over the time you’ve owned your property. You’ll need at least 15% equity in your property to qualify.
There are a few more requirements for this program, so have a look at the product for more details.
3. Simple Refinance
As you may be able to tell from its name, this is the simplest refinance program the FHA offers.
It’s for existing FHA customers who want to switch from their current FHA loan to a new one. There’s no option for cash-out with this program.
You’ll get an appraisal of your home to see how much it’s increased in value. The great thing about this loan is that you can add any upfront costs in the loan amount.
To check you qualify, your lender will need a credit qualification, and proof of income and assets.
4. FHA Refinance — Rehabilitation Mortgages
If you want to buy an old house that needs work, then this is likely the financing option you’ll be interested in.
This loan is also very helpful for those involved in natural disasters, and need to pay for repairs on their home.
Your home will need at least $5,000 worth of repairs, and if for example the house has collapsed or been demolished, it will need to still have foundations to be eligible.
There are many types of alterations that are covered under this program, so have a look at the product to find out more.
The Bottom Line
These days, it’s hard to find financing you can afford.
FHA refinance has made things easier by providing affordable solutions and fewer eligibility criteria, so one of the options above may be just what you’re in the market for.
Everyone’s circumstances are different, though, so always do your research and seek advice before signing on the dotted line.
Like this article? Why not check out this one on finding a mortgage you can afford.