Common Refinancing Options Offered by FHA

Now that interest rates are pretty low, many homeowners are looking to refinance their existing mortgage. Lenders have also sensed this interest in refinancing and are trying to attract borrowers by offering special schemes. While some lenders offer mortgage refinance with no-appraisal, others promise mortgages with no closing costs. This leaves the borrower confused.

How can a borrower decide which refinance program is the right for them? Interestingly, there is no such thing as a right or wrong refinance program. It all depends on your unique financial situation and goals. When it comes to refinancing, you have got mainly two options: the FHA Positive Equity Refinance and the FHA Streamline Refinance.

FHA Positive Equity Refinance

This is another refinance program approved by the Federal Housing Administration. This is the refinance option mainly offered by national home loan companies like PennyMac. 

The FHA Positive Equity Refinance is reserved for homeowners who have non FHA-insured home loans. In order to qualify for this refinance program, buyers should be current on their monthly mortgage payments. Homeowners who have negative equity on their home are eligible to get refinance through this program

The FHA Positive Equity Refinance will give borrowers a 30-year fixed rate mortgage. In addition, the borrower will be eligible for a reduction of at least 10% in their mortgage balance. There will be no closing costs.

In order to qualify for this refinance program, you need to meet the criteria specified below:

•        Your home loan is not backed or owned by Freddie Mac, Fannie Mae, FHA, USDA or VA.

·         The amount you owe on your mortgage is higher than the value of your property.

·         You make your monthly payments on time.

·         You qualify for the mortgage under the standard underwriting requirements specified by FHA.

·         The home is your primary residence.

·         Your total debt amounts to less than 55 percent of your total monthly income.

Borrowers who have been convicted of theft, fraud, forgery, felony larceny, tax evasion or money laundering in association with a real estate transaction within the last ten years are not eligible for this program.

FHA Streamline Refinance

This FHA refinance program is reserved for borrowers who have a mortgage insured by FHA. When you choose this program, you will get to adjust the term of your mortgage and interest rate. Better still, this program has relatively simpler underwriting requirements. That means there will be no new credit checks, home appraisal, or documentation. Since there will be no new home appraisals, this option is ideal for borrowers who are underwater on their mortgage.

Applying for this mortgage refinance program is relatively easy. You will qualify if you have a mortgage insured by FHA. Your repayment history over the last 12 months should be clean. You will also be required to prove that you didn't refinance in the last 210 days.

There is yet another requirement. The applicant has to prove that they will benefit substantially by getting a refinance. In other words, they should be able to reduce their monthly mortgage payment by at least five percent.