FHA FAQ on Refinancing a Loan

Oftentimes after a homeowner has purchased a home, he comes to a point where he wants or needs a refinance. There are many reasons for this. Some people want to take out the equity and invest it elsewhere, other people are struggling to make ends meet so they’re looking for a way to reduce the mortgage payment, and sometimes the homeowner is just hoping to take advantage of the real estate trends. Whatever the reason, many homeowners come to this point and most of them have more than a few questions. Below are a few of the common FHA FAQ regarding federal refinances.

Short Refinances, Cash-Outs, and Streamlines – Your Refinance Options

Image of husband and wife touching their hands over childrenThere are a lot of people that have questions about the refinance loans and whether or not they will actually benefit from them. Two questions they frequently ask are ‘What are my refinance options?’ and ‘What can I  do with an FHA mortgage once I want to refinance?’

The answer to both of these questions is you can do one of two things. You can get a cash-out refinance and use the equity money for other investments or you can get a streamline refinance which enables you to reduce the mortgage payment and oftentimes the interest rate as well. The streamline option can only be given to homeowners that already have FHA loans.

Another question asked is ‘What if I have a conventional loan?’ This is a great question. If you have a conventional loan you can still get an Federal Housing Administration refinance. Depending on your financial situation you may be able to do a cash-out refinance, turning your conventional loan into an FHA loan. There are specific guidelines attached to this so you will need to discuss the details with your loan officer, as every scenario has multiple variables that can change the outcome.

Of course, the cash out option isn’t your only option. If you are upside down on your conventional loan, meaning you owe more than the home is worth, there are two programs that might work for you. The first is HARP, which stands for Home Affordable Refinance Program. With this program you may be able to reduce your interest rate and possibly your mortgage payment by utilizing the benefits that the government has put in place. The second option is the Short Refinance option. With this program you refinance into an FHA loan and your existing lender agrees to forgive 10% of the original loan value. Both of these options have a very specific set of requirements, so you will want to learn what you can from a qualified loan officer.

FHA FAQ About Family

Questions regarding federally insured refinances and family situations are not at all uncommon. There is a very high divorce rate in the U.S. and couples are frequently getting in situations where one or both of them want to get out of the mortgage. In addition to that, parents often pass on homes to their children as an inheritance. Both of these create unique situations when it comes to refinancing.

For couples that are separating, a common question asked is whether or not the spouse can be bought out with a no cash out refinance. This one has an interesting answer. If you have a loan where one party is trying to buy out the other party, the equity that is attempting to be bought becomes property-related indebtedness, which means that is can be included in a new mortgage calculation. However, with divorcing couples the agreements made between the two parties with their lawyers will determine what happens to that equity – that agreement will have to be documented and provided before the spouse can take out any equity.

A second family-related FHA FAQ is regarding property inheritance. Can you refinance a home that you did not purchase but were instead given?  The answer is yes, absolutely. You have to have the legal title and you have to live in the property as your principal residence. You can take advantage of the inherited equity with a cash out loan, or you can simply refinance into a no cash out loan if that is what serves your needs best.

While there is a lot of information available regarding federal refinances, these are some of the common FHA FAQ that people ask. As with any major real estate purchase, before you make a decision discuss your options with a professional so you can get the right deal for you.