If you’re looking to lower your monthly mortgage payment, access your home equity, or switch to more favorable loan terms, FHA refinancing might be an attractive option. FHA refinancing products’ popularity isn’t unwarranted. Some of the reasons so many people turn to them include their:
- Lower credit score requirements: FHA refinancing is accessible even if you have less-than-perfect credit, offering you a lifeline if you wouldn’t qualify for conventional refinancing.
- Flexible guidelines: FHA refinancing options provide flexibility with documentation and appraisal requirements, making the process smoother and quicker if you need to refinance quickly.
- Potential Savings: By refinancing through an FHA loan, homeowners may secure lower interest rates, reduce monthly payments, or shorten their loan term, leading to long-term savings.
However, FHA loans aren’t one-size fits all. There are several different types of FHA refinancing, each with different requirements and eligibility criteria. With that in mind, let’s take a closer look at the various different FHA refinancing requirements, and what you should know before applying.
FHA Streamline Refinance
The FHA Streamline Refinance is one of the most popular FHA refinancing options because it requires less documentation and you don’t need a property appraisal. However, while the FHA Streamline Refinance is popular, its requirements may make it inaccessible to some borrowers. Here’s why:
- You must have an FHA-insured mortgage: If your original mortgage is through another institution, you won’t be eligible for FHA Streamline Refinancing.
- Your mortgage must be current: You can’t have any outstanding or delinquent payments.
- Lenders may perform credit checks and income verification: Although the FHA doesn’t require you to verify your income or have your credit checked to qualify for a Streamline Refinance, most lenders will require you to meet certain credit or income requirements.
Although it’s a popular option, getting approved for an FHA Streamline Refinance can be complicated by individual lenders’ requirements and your existing mortgage. However, if your credit score or income is limiting your eligibility, you’ve got a few other options for refinancing, so keep reading.
Learn more: How to refinance a mortgage with bad credit
FHA Cash-Out Refinance
If you want to access your home’s equity, an FHA Cash-Out Refinance allows you to borrow more than what you owe on your current mortgage and receive the difference as cash.
For example, say you have a mortgage with $150,000 left on it, and you have $50,000 in equity. An FHA Cash-Out Refinance could allow you to take out a new loan for $200,000, paying off your current mortgage and giving you access to the cash you’ve put into your home.
Key requirements include:
- Credit score: You typically need a credit score of at least 580 to qualify, though some lenders might require a higher score.
- Home appraisal: You’ll need a new appraisal to determine your home’s current value and the amount of equity available.
- Equity: To qualify for an FHA Cash-Out Refinance, you’ll need at least 20% equity in your home. So, if your home has a value of $200,000, you’ll need to have at least $40,000 in equity.
Debt-to-Income Ratio: Your debt-to-income (DTI) ratio should generally be below 43%, although some lenders may make exceptions based on your broader financial status.
The eligibility terms for an FHA Cash-Out Refinance tend to be slightly more accessible than refinancing strictly through a lender, without the FHA program. An FHA Cash-Out Refi can be useful for consolidating your debt or paying off large, unexpected expenses like medical costs.
However, the credit score and home equity requirements make it out of reach for some homeowners. Additionally, appraisal and closing costs can tack on an additional 2-6% of the loan value, increasing the cost of borrowing. Therefore, it’s crucial that you consider your own situation and how the cost of borrowing will impact its long-term affordability.
Related read: Home equity loan vs cash-out refinance: which is better?
FHA Rate and Term Refinance
The FHA’s Rate and Term Refinancing option is useful if you want to change the terms of your mortgage, like switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or shorten your loan term. Many people use FHA Rate and Term Refinancing to get on a fixed-rate mortgage so they can have more predictable monthly payments.
You could qualify for an FHA rate and term refinance with a credit score as low as 580. However, that doesn’t necessarily mean they’re a notably accessible form of refinancing. Their additional requirements may limit your eligibility:
- You need a current FHA loan: FHA rate and term refinancing is only available if you have an existing FHA loan.
- Appraisals are required: An appraisal will be necessary to determine your home’s current value.
- Your employment and income are verified: Lenders will require you to share proof of steady employment and income to ensure you can meet the new loan terms.
General FHA Refinance Requirements
Regardless of the type of FHA refinance you choose, there are general requirements you should be aware of before applying:
- Loan-to-Value Ratio: Your loan-to-value (LTV) ratio plays a critical role in FHA refinancing, especially for cash-out refinances. Typically, the LTV ratio should not exceed 85% for a cash-out refinance.
- Mortgage insurance premiums: FHA loans require both an upfront and annual mortgage insurance premium (MIP). The upfront MIP is usually 1.75% of the loan amount, and the annual MIP varies based on the loan term and LTV ratio.
- Occupancy requirements: The property must be your primary residence, so if you’re looking to refinance a rental property, you’ll have to find a different option.
Finally, if you don’t meet these eligibility requirements, don’t worry; you’re still not out of luck!
Refinance With Bad Credit, No Income, or Debt
While some FHA refinancing and private mortgage lenders may exclude you from refinancing if you don’t meet their eligibility criteria, SKYDAN won’t. And the reason is simple: we’re not a bank.
SKYDAN Equity Partners is a real estate investment company. We help you accomplish what you’d do with refinancing by giving you access to your home equity.
Because we’re investing in your home, we’re not concerned with your credit score, your income or job status, or even your debt. As long as you have equity in your home, SKYDAN may be able to help you.
Think that sounds too good to be true? We don’t blame you for thinking so. Check out our reviews on Google, our A+ Better Business Bureau rating, and our customer success story to see why they call us ‘the real deal.’
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