FHA loan programs present the most flexible refinance options available for homeowners today. Their great flexibility also means that FHA refinance requirements for each mortgage product can be very different. Certain provisions that may vary across various FHA refinance guidelines include loan-to-value ratios, credit requirements, property seasoning and the type of mortgage presently held by the applicant.
What are today’s FHA Refinance Requirements?
If you’re seeking FHA refinancing from a conventional loan, your financial and credit history will be reviewed. Keep in mind this can be easier to accomplish than a refinance out of FHA loans. Generally, a credit score of 620 and total fixed debt to income ratio of 43% or less will have you breezing through the FHA loan refinance process. The FHA Streamline Refinance program can eliminate much of the paperwork, so if seeking FHA refinancing from another FHA loan, you’ve got even less to worry about.
1. Your Existing Mortgage Matters
To qualify for an FHA refinance, your existing loan must be current. An FHA cash-out refinance can work for any existing mortgage program and most home types. FHA rate-term refi also works with any type of mortgage. The FHA streamline refinance is reserved only for those who already have an FHA loan, and it’s the only option to perform an FHA refinance with no credit check. Here’s a rundown on how it all works:
- Cash-Out Refinance – FHA cash-out refinance is available for Non-FHA to FHA and FHA to FHA refinance.
- Rate-Term Refinance – FHA rate-term refinance is available for Non-FHA to FHA refinance.
- FHA Streamline Refinance – Only available to refinance FHA loan programs.
2. FHA Credit Guidelines for Refinance
FHA loans are a good option to refinance When evaluating an FHA refinance application, the lender always checks the applicant’s credit rating and history through a tri-merge credit report. To be approved for an FHA refinance, the borrower needs a middle credit score of 620 or above and no late housing payments for the last 12 months. If the applicant has declared bankruptcy in the past, it may still be possible to get approved if enough time has passed since the discharge date and they have made all court-ordered payments on time since then.
- Your FICO credit score must be greater than 620. (Except Streamline Refinance)
- All of your housing payments must have been on time for the last year. (Except Streamline Refinance)
- If you’ve had a Chapter 13 Bankruptcy, at least a year must pass.
- If you’ve had a Chapter 7 Bankruptcy, at least two years must pass.
- At least three years passed since a Foreclosure.
Income Requirements
FHA refinance loans use the standard FHA income qualifications with the exception of the Streamline Refinance. Otherwise, refinance applicants must prove they’re able to pay back their mortgage on time. To accomplish this, FHA refinance loans use debt-to-income ratios to analyze the borrower’s monthly income, monthly expenses and the impact of the new payment. For a borrower’s income to be sufficient, their new monthly housing expenses can’t exceed 31 percent of their monthly income. In addition, the borrower’s total combined monthly expenses including the proposed new housing payment along with any other payments they make can’t exceed 43 percent of their monthly income. Payments included in this calculation are credit cards, student loans, car notes and other monthly obligations.
Current FHA refinance income requirements:
- The applicant must show a reliable two-year work history. (Except Streamline Refinance)
- The applicant must meet the standard FHA debt-to-income ratio requirements of 31 percent and 43 percent through documented income. (Except Streamline Refinance)
- The proposed new housing payment can’t exceed 31 percent of the applicant’s income. (Except Streamline Refinance)
- The proposed new housing payment combined with all additional monthly obligations can’t exceed 43 percent of the applicant’s income. (Except Streamline Refinance)
Property Requirements
Primary residences from one to four units can qualify for FHA mortgage refinance whether they are stand-alone dwellings, manufactured housing, townhouses or individual units in FHA-approved condos. FHA mortgages never carry early payoff penalties and may be assumed by a new buyer/borrower if that person likewise qualifies with your lender. A property appraisal is necessary to determine the value and condition of the subject property unless the loan is an FHA streamline refinance without appraisal. The max LTV on FHA refinance loans can vary depending on the program.
Current FHA refinance property requirements:
- Subject property must be the applicant’s primary residence.
- Qualifying properties include one to four unit stand-alone dwellings, town homes, manufactured homes or FHA-approved condos.
- An appraisal must be performed by an FHA-approved appraiser to determine if the property FHA meets minimum property standards. (except for Streamline Refinance Without Appraisal)
- The appraised value of the property must meet or exceed FHA loan-to-value (LTV) requirements, except for Streamline Refinance.
- The max LTV for FHA Refinance is 97.75%.
- The max FHA Cash-Out LTV is 85%.
FHA Refinance Loan Limits – Standard
| 1-Unit | 2-Unit | 3-Unit | 4-Unit |
|---|---|---|---|
| $331,760 | $424,800 | $513,450 | $638,100 |
FHA Refinance Loan Limits – Elevated Areas
| 1-Unit | 2-Unit | 3-Unit | 4-Unit |
|---|---|---|---|
| $331,760 - $765,600 | $424,800 - $980,325 | $513,450 - $1,184,925 | $638,100- $1,472,550 |
FHA Refinance Loan Limits – High-Cost Areas
| 1-Unit | 2-Unit | 3-Unit | 4-Unit |
|---|---|---|---|
| $765,600 | $980,325 | $1,184,925 | $1,472,550 |
