What Is FHA Refinance?

The Federal Housing Administration (FHA) offers a variety of government-backed refinancing options for homeowners. Because the mortgage is insured by the government, you’re able to get mortgages with lower down payments, lower closing costs, and lower interest rates than you might qualify for in the conventional mortgage market. Regardless of your circumstances and reasons for refinancing, there is likely an FHA refinance option that will work for you. Check out three of the most popular options below:

FHA Simple Refinance

As the name implies, a simple refinance works like most refinance options. If you currently have an FHA mortgage, you can apply for a refinance with new rates and terms. The application process looks a lot like any refinance application, involving credit and income qualifications and a home appraisal.

The perks of a simple refinance include:

  • Ability to remove a co-borrower from the original mortgage
  • No net-benefit requirement
  • No mortgage seasoning requirements
  • Maximum loan to value ratio is 97.75%

FHA Cash-Out Refinance

A cash-out refinance allows you to take out a loan not only for the remaining balance owed on your current mortgage but for all or part of the equity you’ve built in the property. It’s a popular option for homeowners who need to make major improvements or who have other large upcoming expenses like college tuition.

It can also be used as a way to consolidate debt. Use the extra cash from the refinance to pay off higher-interest debt, thereby consolidating it into one, low-interest mortgage payment.

The additional amount you can take out on top of your remaining balance depends on the current value of your home so it’s best to do this when your home value has increased. The eligibility requirements for this option include:

  • Refinanced mortgage is for your primary residence
  • Maximum loan-to-value ratio of 80%
  • Maximum debt to income ratio of 43%
  • Home appraisal
  • This has been your primary residence for at least 12 months
  • Your mortgage payments have been on time for at least 12 months

FHA Streamline Refinance

The FHA streamline refinance is available to borrowers who already have an FHA loan. It allows you to refinance quickly when interest rates are low so that you can enjoy the new lower interest rates.

It’s a popular option due to the ease and speed of refinancing and the minimal eligibility requirements. Those eligibility requirements include:

  • Refinanced mortgage is for your primary residence
  • Current loan is an FHA loan
  • It has been at least 210 days since the closing date of your current loan
  • It has been at least six months since your first payment
  • Your mortgage payments have been on time for the last six months
  • There must be a demonstrable financial net tangible benefit to you to refinance (e.g. – refinancing will lower your monthly payment or shorten your loan term)

Whatever your current situation is, it’s worth your time to consider all of your FHA refinance options as they usually offer some of the most flexible mortgage terms and lowest interest rates!