FHA Refinance Loan Options for Borrowers Who Don't Need Cash
Some might wonder why they would be advised to refinance with no promise of cash back for equity in the home; but some borrowers have financial goals for refinancing that include lower mortgage payments, getting into a more predictable home loan, or taking out loans to rehab a home that needs improvements. The first thing to do is identify your basic refinance loan needs.
FHA Streamline Refinancing
Are you trying to get into a fixed rate mortgage and out of an adjustable rate mortgage? Those with existing FHA loans can use FHA Streamline Refinancing to do this and there’s no cash back to the borrower.
FHA Streamline refinancing generally has no FHA-required credit check or appraisal--the participating lender may require one and FHA loan rules require a new credit check when the borrower’s monthly payments increase by a certain percentage, but you'll need to discuss those issues with a loan officer.
The rules in HUD 4000.1 begin by stating what kinds of property can be refinanced with an FHA Streamline loan. "Streamline Refinances may be used for Principal Residences, HUD-approved Secondary Residences, or non-owner occupied Properties.
Borrowers who have existing non-FHA adjustable rate mortgages can refinance into a new fixed rate (or a new adjustable rate) FHA loan using an FHA no cash-out refinance loan. No cash-out refinancing will require a new appraisal and credit check, similar to FHA cash-out refinance loan options.
FHA Rehab Loan Refinance Options
In some cases, “cash back to the borrower” is a bit more nebulous. Some borrowers want to refinance a home in order to pay for upgrades or repairs. Such loans are possible for both small and large projects. They are known as FHA 203(k) rehab loans and can be processed as refinance mortgages.
FHA 203(k) rehab loan refinancing can be used together with other FHA loan options to increase the home owner’s ability to realize their projects. With rehab loans, there is cash paid out of an escrow fund, but this is in the form of payments for services rendered and materials purchased.
The 203(k) funds are regulated and cannot be dispersed to the borrower in cash for purposes unrelated to the rehab loan project. Borrowers may be required to pay for contractors, consultants, and inspections; talk to your lender about how to properly budget and save for closing costs associated with 203(k) loans.
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