FHA Refinance Rates and Loans are only accessible to borrowers who place down at least 20% of the down payment on their new mortgage loan. (Borrowers, too, can put as little as 3.5%.) Because these specially priced loans carry significantly less “risk” than typical mortgages, the Federal Housing Administration distributes them across the country in order to reduce financial losses during unexpected disasters. The program is also targeted at ensuring fair treatment of minorities and women during the purchase of a new home. Because FHA refinance rates are based solely on the borrower’s income, not their credit score, borrowers with streamline fha refinance poor credit are often denied access to these attractive mortgage alternatives.
If a borrower has been paying more than the FHA minimum payment each month for five or more years, he or she may qualify for an FHA refinance. Borrowers who were late on at least one mortgage payment and have not passed the eight weeks leading up to the current closing date may qualify as well. However, borrowers must pass the twenty-eight days preceding the official closing date in order to apply for this option. This five-day waiting period is called the “cooling off period.” The waiting period can be shortened by paying the entire remaining balance due on the original loan. Alternatively, a borrower can pay a portion of the principal and close the loan on the approved date, thereby immediately satisfying the requirement to obtain an FHA loan.
Another way to qualify for an FHA refinance is by arranging for a “change of repayment,” known as a “craze.” For example, if a borrower can demonstrate that he or she will soon become unemployed, the federal government may temporarily reduce the loan amount to the point that it will be easier to qualify for a refinance. In addition, another common “craze” is to adjust a loan’s rate to the index rate for the time frame in question. The specific requirements for these types of refinance are quite varied, so a potential borrower should contact his or her lender to inquire about other possible options.
A second way to qualify for an FHA refinance is to take cash out of one’s savings. Saving money is a popular option for many borrowers, because it allows them to pay down the principal on their loans or take cash that they would otherwise use for debt consolidation. The second main eligibility requirement for an FHA refinance is that borrowers are current on their loans, regardless of how long they may have been delinquent. Borrowers with poor credit may still qualify for an FHA loan if they meet certain requirements, although they will likely have to pay higher interest rates.
When borrowers apply for an FHA refinance, they must supply the lender with certain financial information, including their current gross income, expenses, and financial assets. After reviewing the application, the agency will either approve or deny the request for a refinance. In either case, if the refinance is approved, the new loan will be set up to repay the original loan, and the existing loan will be closed. Once the old loans have been paid, borrowers can apply again to take cash out of their savings.
Because FHA loans require such meticulous screening, lenders often offer special financing deals to people with bad credit. Refinancing is a popular option for first-time home buyers, but can also be helpful for borrowers who have experienced financial difficulties in the past. Those who cannot qualify for a conventional loan because of poor credit can still qualify for an FHA loan through the same lender. The only difference between a traditional FHA loan and an FHA refinance is that the former requires borrowers to borrow at least 80 percent of the value of the property. This requirement often results in lower interest rates.