Refinancing Your FHA Mortgage Loan

Posted by  on Oct 08, 2009

The FHA Streamline Refinance: No Appraisal or Credit Scoring Required

If you have an FHA mortgage loan you may qualify for FHA's streamline refinance program. Unlike recent government initiatives, streamline refinancing is not limited to homeowners affected by declining property values or other financial hardships. The streamlined refinancing program offers reduced paperwork and underwriting, which speeds up your mortgage refinance. You may refinance with or without an appraisal, depending on the type of refinance you choose. So if your property value has declined you can still get your refinance. In addition, if your credit rating has slipped you can still get approved as long as you have been making your mortgage payments. Here are basic eligibility criteria for a streamline refinance mortgage:

1. Your present mortgage must be an FHA-insured loan

2. Your mortgage payments should be current (past due payments can complicate the approval process for refinancing).

3. The purpose of refinancing is getting a lower mortgage rate. Cash-out refinances are not eligible for streamline refinancing.

Refinancing Through FHA

Getting refinancing through FHA programs can help you reduce your mortgage rate and stabilize monthly payments by converting adjustable rate mortgage loans (ARMs) and mortgage loans with exotic terms to fixed rates. Here's a summary of how to prepare for refinancing with an FHA refinance program:

  • Verify your current mortgage balance and get an estimate of your home's current value. If your mortgage amount is equal to or exceeds your home value, pursue the Making Home Affordable refinance program.
  • Verify that you have an FHA insured mortgage (streamline program) or that your mortgage is owned or guaranteed by Fannie Mae or Freddie Mac (making Home Affordable program).
  • Decide how to pay closing costs: If you're low on cash for closing costs and have enough home equity, you may be able to add closing costs to your refinance mortgage amount, or pay a higher mortgage interest rate and have the lender absorb them. Paying closing costs upfront can help you get the lowest mortgage rates and payment amounts. Compare mortgage quotes for paying costs up front and adding them to the mortgage balance or paying them via a higher interest rate.
  • Contact your mortgage loan servicer: They can provide more information about FHA streamline and Making Home Affordable refinance programs and verify your eligibility. Get refinance mortgage quotes from your loan servicer, but also shop quotes online to compare current mortgage rates and loan features.

Interest Rate Quotes and Closing Costs

Homeowners who cannot pay closing costs upfront have two options for covering these costs:

1. "No cost" mortgage refinance: Under this option, mortgage lenders quote higher mortgage rates, and cover your closing costs with the additional profit from the higher rate..

2. Closing costs added to mortgage loan amount: This means that your mortgage refinance amount will increase by the amount of closing costs. A drawback of this option is that it will increase your monthly payments. Adding closing costs to your mortgage typically requires an appraisal of your home to determine that you have enough home equity to avoid owing more on your mortgage than your home is worth. No appraisal is required for adding costs to your refinance amount if you're refinancing for an amount equal to or less than your original mortgage loan amount.

Contact your mortgage servicer to learn for more information about streamline refinancing of your FHA mortgage loan. Here is a link to contact information for FHA approved mortgage lenders/servicers.

Refinancing When Your Mortgage Amount Exceeds Home Value

If your mortgage loan balance is more than your home is worth and your loan isn't an FHA, the government's Making Home Affordable Refinance program may help if you meet these criteria:

1. You own a one to four unit home

2. Your home mortgage is owned or guaranteed by Fannie Mae or Freddie Mac. Most home mortgages in the US meet this requirement, but you can look up your loan here. Your mortgage does not have to be an FHA insured mortgage to qualify for a Making Home Affordable refinance.

3. Your mortgage payments are current (Current is defined as not having been more than 30 days late on mortgage payments within the past 12 months.)

4. The amount owed on your existing mortgage is not more than 125% of your home's current value. As an example, if your home is worth $200,000 your existing mortgage balance could not exceed $250,000.

5. Although the Making Home Affordable Website offers a preliminary eligibility assessment, please contact your mortgage loan servicer to confirm eligibility for a mortgage refinance under this program.

Refinancing can increase your financial stability and peace of mind. Look into mortgage refinance options for lowering mortgage rates and/or converting to a fixed rate mortgage.


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