The Federal Housing Administration (FHA) offers two types of refinance loans: rate-and-term, and cash-out refinances. For rate-and-term refinances, the loan amount must be below the existing loan balance of the mortgaged property, and the borrower must be current on mortgage payments. This type of loan does not require any appraisals, but lenders will look at credit score, income, and debt-to-income (DTI) ratio when determining eligibility.
For a cash-out refinance, the loan amount must be greater than the existing loan balance, which means that the borrower must have equity in the property. In addition, lenders must conduct an appraisal to determine the property’s market value. Borrowers must also demonstrate that they can afford the new loan payment with their current income. As with rate-and-term refinances, lenders will look at credit score, income, and DTI ratio.
Both types of refinance loans require the borrower to pay closing costs, which can include fees for origination, title insurance, and third-party services. However, FHA allows borrowers to roll closing costs into their loan amount if necessary.
When it comes to eligibility, FHA sets certain requirements for borrowers. To qualify for an FHA refinance loan, the borrower must be at least two years removed from any bankruptcy proceedings, and must not have had an unpaid foreclosure within the last three years. In addition, FHA requires the borrower to have a valid Social Security number and be of legal age to sign a loan agreement.
In summary, the article deals with the rules and guidelines associated with FHA refinance loans. These are essentially two types of loans: rate-and-term and cash-out refinances. Rate-and-term refinances do not require appraisals, but lenders still look at credit score, income, and DTI ratio. For cash-out refinances, however, lenders must conduct an appraisal to determine the home’s market value. Both types of loans involve closing costs, and borrowers can roll these into the loan amount if necessary. Lastly, FHA sets certain eligibility requirements for borrowers, such as being two years removed from any bankruptcy proceedings and having a valid Social Security number.
This article was contributed on Dec 13, 2023
