Reviewing the positives and negatives of using an FHA program to refinance may be a good idea, but don’t expect to learn what they are overnight. As with many government backed programs, FHA refinancing can be both confusing and contradictory at times.
FHA refinances generally allow you to finance up to 95 percent of the value of your home, depending on certain factors. They also claim to offer the best available rates regardless of your credit score. However, judging by the guidelines that are put in place for qualifying for an FHA refinance, this doesn’t seem to be a valid claim.
New guidelines established in 2007 and taking effect as of July, 2008 did make it easier to qualify, but also don’t seem to provide the best rates “regardless of your credit score.” Borrowers who were delinquent on a non-FHA ARM can only qualify if they were 30 days late no more than twice or 60 days late one time in the previous 12 months. Borrowers can qualify for up to a 90 percent LTV refinance if they were no more than 30 days late three times or 90 days late one time prior to the rate being reset.
This hardly means anyone can qualify “regardless of their credit score”.
To qualify for a refinance of a conventional loan of up to 95 percent loan-to-value, the borrowers current mortgage must not have been reported late in the last 12 months and must be current at the time of the refinance. Any late payments will bring the maximum loan value down to 85 percent of the appraised value.
Borrowers must also be living in the property and will not qualify for an FHA loan if they have not lived in the property for at least 12 consecutive months.
Cash out refinances are not allowed on conventional mortgage refinances. There is a clause in FHA refinancing guidelines stating that cash out can be permitted on properties that are owned free and clear. However, if a property is owned free and clear, that would mean that there are currently no liens on the property. This would then not be a refinance but would actually become a new mortgage, so this clause doesn’t even seem to make sense.
In most FHA programs, there are also annual premiums and Up-Front Mortgage Insurance Premiums.
Maximum loan-to-value ratios also vary by state depending on the average amount of closing costs for a particular state and the appraised value of the property. FHA refinances also offer streamline mortgage refinancing to existing FHA mortgage holders.
To figure out if FHA refinancing is a good choice for you, it is recommended to find a mortgage rep or broker who has some experience in FHA refinances. When it comes to government backed programs such as FHA refinances, things aren’t always as black and white as would be preferred.
There may be advantages as well as disadvantages to refinancing using an FHA program, but consulting an expert before making your decision is something that you should consider.
Rob K. Blake, home loan expert and author, educates mortgage shoppers on finding local providers by state like New Mexico Mortgage Brokers and Lenders and provides reviews of national companies like Accredited Home Lenders.
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