The Federal Housing Administration is a government program that is in place for homeowners who are in financial situations that stop them from qualifying for a home through a conventional lender. Since its inception during the Great Depression, it has become a driving force in the real estate market simply because it’s opened up the opportunity for home ownership to so many people. If you want to have FHA refinance a home you will still need to meet their requirements, but these requirements are much less stringent than those for a conventional lender.
Preparing Your Finances for Financing
The qualifications when you have FHA refinance a home are similar to when you purchase through the Federal Housing Administration. You first have to qualify with your financial situation. This means that the lender is going to look at your credit score and your financial history. For a refinance he’s going to look for delinquent payments, late payments, bankruptcies, and foreclosures, in addition to your assets and work history. Typically speaking in order to qualify for a federally insured loan you need to be in a stable job with a salary that has remained the same or increased. In the case of a bankruptcy or foreclosure, if you have either of these on your financial history you will have to wait two to three years before you can qualify for a federally insured loan.
When you refinance you do so hoping to make your current home mortgage work better for you. So with a refinance the lender is going to want to know whether you are current on your payments. As a general rule of thumb, if you’re not current on your payments and in good standing on the loan, it will be very difficult to qualify for a refinance. So your first step to qualifying is to clean up anything on your financial history that can be cleaned up, and plan way in advance if you don’t have a stable work history or if you are behind on your payments. Getting these items up to par will make it easier for you to secure financing.
Benefiting When You Have FHA Refinance a Home
When the Federal Housing Administration approves a mortgage for a refinance, they do so under a different set of terms than a conventional loan. Typically speaking, with an FHA refinance you need to experience some financial benefit because of the refinance. Most of the time the lenders want to make sure that the refinance is going to adjust your terms in a way that will lower your payment and/or make the mortgage easier to handle. This may mean that the interest rate drops or the mortgage term increases or decreases, oftentimes both. How it is done will be largely determined by the lending institution, but the fact that it is done is what matters. Your monthly interest and mortgage payments need to decrease.
Now it’s important to note that the qualifications are a bit different on a cash out refinance. For this loan they’re not looking to make sure your interest and monthly mortgage payments lower. They are looking to make sure you can make the payments and handle the increased demands of the mortgage. So the credit score needs to be 580 or above if you want to pull out the maximum amount, and the mortgage payment can’t be more than 29% of your monthly income. A streamline refinance is a little different as well. The lender will still need to verify that the refinance will lower monthly mortgage and interest payments, but they won’t need all of the information on your existing financial situation. You will need to be current on your mortgage, of course, and you’ll have to prove that you are working, but the credit report, the appraisal, and most of your financial history will be taken from the original loan. It’s called a streamline because it doesn’t have the requirements that the other loans have. The one downfall is that you cannot pull out cash with the streamline option.
There are many different Federal Housing Administration loans that you, as a homeowner can take advantage of. When you have FHA refinance a home you’ll determine the loan you need by the situation you are currently in. Typically speaking, however, if you’re not in crisis on the loan, the qualifications that need to be met will be those mentioned above. Your lender and loan officer will be able to help you meet any additional requirements that might come up through them.