To refinance an FHA loan, you must qualify for the FHA loan or another type of loan. We'll go over some of what's needed to qualify for individual types of home loans a little later, but for now, let's talk in general terms. The FHA has minimum requirements for FHA loans, including refinances, but FHA lenders can also set their own standards in addition to these. Simple FHA refinancing allows homeowners to move from their current FHA loan to a new one, either a fixed-rate loan or an ARM.
The difference between a traditional cash-out refinance and an FHA cash-out refinance is that your new mortgage will be insured by the Federal Housing Administration. A simplified fha refinance is for existing FHA loan borrowers to capitalize on low rates by quickly and efficiently refinancing, earning the name of “streamlining.” With FHA mortgages, homeowners with lower credit scores can be approved and loans have lower interest rates. The FHA reverse mortgage loan is also known as a home equity conversion mortgage (HECM) and is repaid when the owner no longer occupies the property. Whether you should apply for an FHA cash-out refinance depends on what you need the money for, how much you owe on your current mortgage, and the value of your home.
You'll need to meet these mortgage refinance requirements because you'll need to work with one of these lenders to close an FHA loan. However, if you've faced a large unexpected expense and are still working to improve your credit rating, a new FHA loan may be your best option. There are different reasons for different borrowers to refinance an FHA mortgage, but it essentially boils down to three main motivators. The main advantage here is that you may qualify for an FHA loan with a higher DTI (in some cases up to 67%) than with a conventional mortgage, depending on a variety of other factors.
If you selected an FHA adjustable-rate mortgage when you purchased your home and your launch period is coming to an end, you may want to consider applying for a fixed-rate mortgage to secure yourself now with still very low interest rates. You can do a cash-out refinance through the FHA, although it may not be your best option financially. You will then need to determine if the positives of an FHA cash-out refinance outweigh the negatives. Also, if you're looking to do an FHA Streamline, move from one FHA loan to another for the purpose of changing your term, lowering your rate, or both, there's often a waiting period.
But you must also have at least 20% of the net worth remaining in your home after the FHA cash out refinance is completed, which limits the amount of cash you can withdraw. To be eligible for an FHA cash refinance, borrowers will need at least 20 percent equity in the property under a new appraisal.