Refinance Loans: True and False

February 17, 2016

For those considering an FHA refinance loan, it’s best to start planning and saving for your new application as early as possible. The preparation phase for an FHA refi is important, and if you start early the same way as preparing for the original purchase loan, you may save yourself some valuable time later on.

Have you reviewed your credit history to make sure you have no late or missed payments in the last 12 months? Checked your credit report for evidence of identity theft? Or investigated whether outdated information is still being reported on your accounts? Knowing all this as far in advance as possible can help--especially if you have to dispute something on your credit report or clear up an old debt you didn’t realize was still on your report.

FHA Refinance Loans True and False:

TRUE:
FHA refinance loans are available for both existing FHA loans and loans that did not originate with a participating FHA lender. You can apply for an FHA cash-out refinance or no-cash out refinance loan on a conventional, VA, or any other non-FHA mortgage. FHA Streamline Refinancing is for existing FHA loans only, and the lender may be able to use your original home loan application data for the new refinance loan.

FALSE:
“FHA Refinance loans don’t include any extra money for repairs or improvements”--here’s a statement that is definitely untrue. Borrowers can apply for FHA Energy Efficient Mortgage (EEM) options with both streamline and cash-out/no-cash-out refinance loans. You will also discover a number of other FHA refinance options under the 203(k) program for rehab purposes. Ask your lender about the FHA 203(k) option if your property needs rehabilitation/repairs.

TRUE:
Did you know that an FHA Streamline refinancing loan features no FHA-required appraisal? The lender is free to require one, but the FHA does not require an appraisal or a credit check on Streamline refinancing except in specific circumstances where the new loan increases the borrower’s monthly payments by 20% or more.

FALSE:
“You are required to have an existing FHA loan in order to qualify for a new refinance”--not true. Some borrowers mistakenly turn only to their existing lender instead of shopping around for an FHA mortgage. But shopping around for good rates and terms is quite beneficial--you can apply for an FHA refinance mortgage loan with any participating FHA lender. It’s always a good idea to competitively shop around for an interest rate, even if you decide to use your existing financial institution after all.

TRUE:
If you want to refinance and get money back from the proceeds of the loan, the FHA loan program does allow cash back to the borrower when approved for FHA cash-out refinancing.

No money back is permitted for streamline refinancing except for legitimate refunds, usually $500 or below comes back to the borrower in this way. Those who want cash back on the new loan should not apply for streamline refinancing, but FHA cash-out refinancing instead. Remember, cash-out refinance loans offer money back to the borrower after the original note and any associated fees or expenses have been settled.