An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.
Refinancing with an FHA loan can prove to be an effective way to put that equity to work. Keep in mind that FHA refinancing is only available to homeowners who are currently using their home as their principal residence.
There are many FHA refinancing options, such as Cash-out refinances or Streamline refinances. The type of refinance you choose depends on your particular situation.
Qualifying for an FHA Loan
You cannot qualify for any type of Federal Housing Administration refinance loan if you are not current on your existing mortgage loan. If you are behind on your existing mortgage, even by a week or two, you will need to make a payment to bring the loan current before you submit your refinance application. If you are significantly late, this payment will probably need to include late fees and default interest on the amount that is late.
You also won’t qualify if certain things appear on your credit report. First, if you have filed for bankruptcy within the past two years, you won’t qualify to refinance. Similarly, you won’t qualify if you have an existing tax lien that you are not currently paying off. Finally, you won’t qualify if your credit report reveals several late payments on any of your debts within the past two years.
If you have an existing conventional mortgage loan, you may be able to qualify for an FHA replacement loan. The credit, down payment and income requirements for an FHA replacement loan are the same as for a cash-out FHA refinance.
Refinancing a home loan with an Federal Housing Administration mortgage can be a good move, especially for borrowers with existing FHA or conventional loans that feature adjustable interest rates. If you are looking to build predictability into your monthly mortgage obligation, want cash back on a refinance loan, or want a lower interest rate, there are plenty of options available to you.