FHA Home Loans Refinancing

New Rules for FHA Home Loans


It’s no secret that FHA home loans have been a driving factor in the housing recovery because they help a wide range of borrowers with low down-payments and ensure competitive pricing from low interest rates. Last year FHA originations rose 22% to $233 billion. Since FHA defaults and delinquencies also rose last year, the Department of Housing and Urban Development and the Federal Housing Administration decided to tighten the guidelines in an effort to minimize defaults. There have been new FHA requirements incorporated that may hinder some borrowers from getting approved.

Home Loans Must be Manually Underwritten for Applicants with Poor Credit Scores
When an applicant has a credit score of less than 620, the FHA is now requiring approved FHA lenders to manually underwrite the mortgage. This means that borrowers that have are submitting a FHA house loan with bad credit‚ would have their request reviewed by an underwriter if their credit score averages came between 500 and 619. Last year applicants with fico scores below 600 could still get the home loan underwritten by the automated underwriting system.

FHA Raised Annual Mortgage Insurance Premium 
Due to the number of poor credit FHA liens insured during the housing crisis, the FHA reserves nearly evaporated. The strategy to strengthen FHA financing was laid our with higher annual mortgage insurance premiums, which went into effect April 1, 2013. Keep in mind that these mortgages are only readily available in higher cost areas of the country such as certain areas of California, Maryland and Colorado. People that have a high balance FHA mortgage should also discuss possible changes with their lender as higher insurance premiums will apply. However, the new rules do not apply streamline refinance program.

Customers with FHA Loans Can No Longer Cancel Mortgage Insurance
After June 3, 2013, customers that get a FHA home loan will no longer be able to cancel their mortgage insurance once the outstanding principle balance reaches 78% of the original balance. The new rule states that MIP cannot be removed throughout the life of the mortgage if the starting loan balance is higher than 90% of its appraised value. However, if the loan-to-value begins at 90% (or less), the borrower has 11 years to complete mortgage insurance premium payments.


2013 FHA Loan Requirements


There has been a lot of talk about Congress coming down hard on government financing with tighter 2013 FHA loan requirements in an effort to stem foreclosures and reduce delinquencies. In 2012 we witnessed the lowest interest rates ever recorded and importantly the housing sector has begun to turn the corner for the better.

Thousands of first time home buyers were able to utilize FHA to buy a home in their neighborhood. In most cases converting a renter to a home owner is good for the economy. Most of these consumers choose these government loans because the FHA down-payment requirements still only request a 3.5% from the borrower. Fannie Mae and Freddie Mac request 10 to 20% in most cases from first time home buyers.

Millions of struggling homeowners were able to refinance with government loans because the rates were low and the credit guidelines were more flexible. People like the FHA refinance requirements that only require 3.5% equity and a 96.5% loan to value ratio for underwriting purposes. People also like that 2013 FHA requirements still say the minimum credit score is only 500. Most lenders offering refinancing from Fannie or Freddie say that the minimum credit score is usually 680, with the rare exception allowing for scores as low as 640 for borrowers that have compensating factors.

We anticipate that there will be proposals from committees in Congress to raise the 2013 down-payment requirement to 5%, but our staff does not believe there is enough momentum to pass such legislation. The Federal Housing Administration has been helping consumers become first time home buyers since 1934 and we do not expect that to change in the next few years.

We do anticipate that there will be changes to FHA loan programs in the new year. We anticipate the minimum credit score will rise at some point in the coming year. We expect refinancing with FHA to remain aggressive as property values across the country are finally rebounding.


FHA Streamline Loans vs. HARP Refinance


The streamline refinance loan from FHA has expanded their refinancing guidelines similar to the Home Affordable Refinance Program. The FHA streamline loan no longer has a loan to value requirement for existing FHA customers which is very similar to the HARP refinance.  The FHA streamlines require no appraisal either, whereas the HARP lenders still require an appraisal. The FHA streamline mortgage does not require income documentation, yet that HARP loan continues to maintain income criteria like W2’s, pay-stubs and tax returns. Both the HARP and the FHA streamline loan offer great low interest rates. The FHA streamlines do require monthly mortgage insurance and the HARP mortgage does not.

According to the MBA, the two most popular refinance programs nationally in 2012 is the HARP 2.0 and the FHA streamline refinance program.  FHA is promising reduced upfront costs on mortgage insurance premiums for distressed homeowners looking for relief from higher interest rates and an underwater mortgage.

Review the FHA Streamline Eligibility Requirements for Refinancing

  • Must presently have a FHA home loan
  • Current FHA loan must have been recorded by FHA before June 1, 2009.
  • You also need to have no late mortgage payments in the last year.
  • Borrower must be presently employed.

The FHA streamline lenders promise an automated process and the loan companies that offer the HARP 2.0 have been reporting a slow processing time because this new program is considerably backed up. According to a recent survey from the Federal Housing Administration indicated that average FHA customer would save $200 a month after refinancing into a FHA streamline loan.

FHA Streamline Loan Advantages

  • Guaranteed lower monthly payments
  • Guarantee that mortgage balance will not increase
  • Lower FHA rates
  • Skip 1 or 2 loan payments​
  • No appraisal needed
  • Refinance without income documentation

If you are unsure about which mortgage relief program is best for your situation, talk to one of our lenders and they will help you uncover the best choice between the FHA streamline and HARP refinance.


Current FHA Rates Fall to the Lowest Level of the Year


As the housing sector and American economy continue to struggle, FHA mortgage rates have declined to the lowest point of the year. As usual, bad news in the economy has help create good news with the current FHA rates dropping. This should help loan companies that provide government financing like FHA mortgage programs that slowed down drastically after HUD raised FHA insurance premiums last month for the 2nd time in the last 6 months. The noteworthy drop in FHA interest rates could help off-set the insurance rate hikes.

The US Government has the Ability to Stem the Foreclosure Crisis with Aggressive FHA Home Loans

Even with inflation concerns coming into focus, the Federal Reserve has kept the key interest rates at nearly zero percent. Fed Chief Bernanke has kept his promise of doing everything he can to help the housing industry rebound because Americans have access to the longest streak of affordable home financing that we have seen in a century. Still with home values falling for 37 consecutive months you have to wonder what it will take to get the housing sector back on track.  Former Ditech mortgage executive, Jeff Morris said, “Lenders could drop rates to 2% and home values would still be hindered because it’s the tight mortgage guidelines and unreasonable requirements for lending that are preventing millions of Americans from refinancing mortgages and preventing millions of consumers to become first time home buyers.”  Morris continued, “The FHA mortgage rate is amazingly low and affordable but it is not accessible for a high percentage of Americans who simply don’t qualify with today’s tighter conventional and FHA guidelines.”

Get Approved for the Lowest FHA Rates in 2011

Many loan professionals believe the 2011 FHA requirements have gone too far too quickly.  Too many homeowners have been hung out to dry with adjustable rate mortgages that they cannot afford but refinancing with FHA or a traditional lender simply is not an option because they do not meet loan eligibility.  Homeowners should have been given a grace period to refinance before banks and lenders tightened refinance and purchase money guidelines.  The pool of qualified borrowers for mortgage refinance and home purchase loans has shrunk to the lowest level in decades.  Food and energy costs have skyrocketed yet most Americans are making less. With a 9% unemployment rate, we anticipate FHA rates will remain loww for the rest of 2011 and into 2012.

5 Recommended Changes that FHA Should Incorporate to Help the Housing Sector Rebound

  1. Eliminate the FHA Minimum Credit Scores for Home Loans – One of the keys to FHA’s success has been their flexible criteria with credit. Qualified borrowers have been benefiting from bad credit refinancing with FHA for decades and the default rate has always been minimal because FHA underwriting has been good at approving loans that make sense.
  2. Revert back to 2009 Rate for FHA Premiums – This will lower the housing expenses by hundreds of dollars a month for many homeowners in the high cost regions like California, Colorado, Connecticut, Florida, Washington DC, Virginia, New Jersey and New York.
  3. Allow Mortgage Refinancing to 125% for rate and term transactions for homeowners that have not been late on the mortgage in the last 24 months and who have had their home loan prior to 2008.
  4. Enable homeowners to consolidate 1st and 2nd mortgages together up to 100%.  Many homeowners have credit lines and 2nd mortgages with high interest rates and they do not have enough equity to refinance.
  5. Keep the FHA loan limits at current levels. This will help homeowners leverage the low fixed 30-year mortgage rates and provide peace of mind and protection against inflation and rising interest rates.

FHA and the Effects of a Government Shutdown


Loan officers, lenders and borrowers are starting to get a bit nervous about FHA lending being adversely affected if the government shuts down. In a recent article written by Brian Collins of Origination News, posed some interesting questions about how the FHA mortgage loan programs could be affected if the U.S government shuts down on Friday. Since FHA has a significant market-share in home financing, there certainly could be some dramatic setbacks. While FHA is best known for first time home buyer loans, the government finance agency has a wide variety of FHA mortgage programs for refinancing and home purchasing.

According to FHA commissioner, David H. Stevens, if the government does shut down, HUD will be forced to stop endorsing new FHA home loans.  At this point Congress will have to come together and agree to budget deal with the Obama Administration by midnight Friday.

Will Government Shutdown Cause a Bottleneck for FHA Loans?

According to a memo drafted by a housing trade group, “FHA cannot offer endorsements for any new FHA home loans in the Single Family program and are not allowed to make further commitments in the Multifamily if the government shutdown happens.” ”FHA lenders” will need to brace for the government shutdown or shift gears with conventional loans backed by Fannie Mae and Freddie Mac.

According to analysts at Keefe, Bruyette & Woods last year, the Federal Housing Administration insured almost 40% of all home loans totaling $200 billion. According to the government sponsored enterprises regulator, the government shutdown would not stop Fannie Mae and Freddie Mac from buying and securing home mortgage loans. The GSEs are in conservatorship and dependent on a Treasury Department line of credit to stay afloat. Nevertheless, the terms of the conservatorships and Treasury’s support is not affected by the budget process.”  According to a statement issued by the Federal Housing Finance Agency a government shutdown would not impact the operations of Fannie Mae and Freddie Mac as the Treasury Department Preferred Stock Purchase Agreements with the Enterprises are not subject to the annual appropriations process.”

HUD Secretary, Shaun Donovan discussed his homeownership vision a few days ago when he underlined the new direction that FHA is heading in an effort to prevent future housing bubbles and risky lending philosophies.  According to Donovan, “The mentality of kind of using homes as ATMs that we got to three years ago—don’t mistake that with the long-term, fundamental belief that most Americans had in their homes not as piggy banks, but as a place to raise their kids, a place to invest in, and, in the long run, a place to build equity in that they could pass on to their kids and their grand-kids.”


FHA Super Jumbo Loans


The housing boom a few years ago really drove up home prices and the need for super jumbo loans became evident. FHA jumbo loans have become quite popular in states like California, Florida, Virginia, Maryland, DC and Connecticut. Any Over the last few years, HUD has become more accommodating to borrowers in high cost regions who need mortgages that exceed the FHA loan limits.  In most cases, getting approved to refinance FHA loans is not as difficult has non-conforming loans that most traditional lenders are offering.

What is a Super Jumbo Loan?  Mortgage professionals consider any loan amount over $650,000 to be a super jumbo. They also consider any loan insured by the Federal Housing Administration that is greater than $417,000 to be a FHA super jumbo.

What to Expect – Many homeowners have found that jumbo mortgage refinance programs are not as accessible as they were just a few years ago.  The reality is that the secondary mortgage market has strayed away from jumbo lending and private money sources have tightened their requirements significantly. These non-conforming loans typically are offered at a higher interest rate and more equity is sometimes needed for FHA refinancing.


FHA Rates Lower than Conforming Interest Rates


For the third consecutive week finance rates were lower with FHA insured loans than conforming rates.  FHA rates were available as low as 3.5% on 30-year fixed rate mortgages and conforming rates averaged 3.5%.  HUD offers FHA insured home loans to qualified borrowers in an effort to promote fair lending.  FHA mortgage rates remain at an affordable level for borrowers seeking new home loans and mortgage-refinancing

  • FHA Refinancing
  • First Time Home buying Loans
  • Energy Efficient Loans
  • House Improvement Loans

Keep your eye on FHA interest rates this year as many economists are predicting a trend for higher interest rates.  Conforming rates have started to rise and FHA rates could be next.  With FHA loan standards getting tighter it makes sense financially to get approved now for a FHA finance option that meets your needs today. Read more from the MRB article about government refinancing at Mortgage Refinancing Buzz.com.


FHA Refinancing Tips


It’s no secret that guidelines for FHA refinancing have tightened significantly in recent years.  It wasn’t so long ago that FHA lenders were unique because they offered bad credit mortgage solutions to borrowers that had compensating factors like hardships.  Consumers loved FHA refinance programs because they enabled “outside of the box” lending that looked beyond the credit score.  If a borrower could demonstrate they had the ability to make the loan payment on time, then in most cases they would get approved for FHA refinancing.

If FHA rates drop, then a borrower could get access to the streamline loan that enabled quick and cost effective rate and term refinancing.  FHA refinance rates continue to be available in the 4.625 to 5% range which is phenomenal for a 30-year fixed rate home loan. We recommend comparing refinance loan quotes while rates are so attractive.

FHA Refinance Tips

  1. If you are having trouble qualifying due to lack of equity and already have a FHA loan, request a FHA streamline.  In most cases, there is no appraisal with FHA streamlines, so borrowers may qualify regardless of equity.
  2. If you are having difficulty getting approved for FHA refinancing, but have good credit and a salaried job, then the streamline may be the solution, because there is no income documentation required.
  3. If your mortgage is underwater, (mortgage balance is greater than your home value) then request a FHA short refinance.  This unique loan could result in a principal balance reduction.

FHA Refinancing or Second Mortgage for Cash Out?


When FHA refinancing or taking out a second mortgage for cash out, there are many things you should consider. First of all, ask yourself this question.  Is this cash out loan going to have implications in the future.  In other words, “Will it prevent you from getting a loan in the future?” Depending on the circumstances a cash out loan certainly could. It is always wise to consider the implications before committing to any type of cash out mortgage or second mortgage.

  • FHA loans allow cash out refinancing to 85%
  • FHA offers a 203k loan for home rehabilitation purposes up to 115%
  • HUD has started putting CLTV restrictions on FHA refinancing.
  • Second Mortgage Subordinations are allowed but most lenders.

Second mortgage financing must meet the following requirements:

> No prepayment penalty allowed

> No balloon payments less than ten years

> Payments on FHA 1st mortgage and subordinate 2nd mortgage liens, plus other housing expenses, cannot exceed borrower’s capacity to repay. Any periodic loan payments due on the second mortgage are due monthly and are essentially the same in dollar amount.

One advantage of getting cash out with a FHA loan is that you only have to deal with one investor when considering a refinance in the future.  If you take out a 2nd mortgage or home equity loan, you would like have to deal with multiple investors and that could prevent you from refinancing depending on the lenders guidelines.  HUD used to allow subordinate financing and 2nd mortgages up to 125% but HUD has significantly revised the FHA guidelines in recent months.


FHA Short Refinance Loan Update


In a few days, the government will be launch the latest mortgage relief effort with the FHA short refinance program targeting homeowners who are struggling with an underwater mortgage. The FHA short refinance program has also been called the Emergency Homeowner Loan Program.  The only catch for eligible homeowners is that they must have a stellar record of timely mortgage payments before qualifying for FHA refinancing under this program.

Take advantage of Refinancing Underwater Mortgages with the FHA Short Refi Program

The FHA Short Refinance loan was created to assist distressed but responsible homeowners who owe more on their home loan than their house is worth because their local markets saw significant declines in property values.The FHA short refinance program will kick off on September 7th. FHA rates remain at record lows, so this should be a very popular loan program as approximately 35% of homeowners in the U.S. are said to have an underwater mortgage.

This mortgage refinancing program provides a new opportunity to specific non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least 10 % of the unpaid balance of the first mortgage. The new mortgages would then be FHA-insured.  The borrower must have a credit score of at least 500 and the house must be the homeowner’s primary residence.

To be eligible for FHA’s Short Refinance program, a homeowner must meet the following criteria:

• Borrower must have a mortgage underwater (negative equity as mortgage is greater than property value)

• Homeowners must be current on their mortgage

• Borrower must live in their home (primary residence)

• Borrower must have a minimum 500 credit score

• Homeowner must have an existing non-FHA loan

• Existing mortgage lender must write down at least 10% of the unpaid balance

• Refinance the new FHA mortgage to a loan-to-value ratio of no more than 97.75 %.

In addition, the first mortgage being refinanced must have a maximum loan-to-value of 97.75 %.  Some FHA refinance lenders are exciting with the government’s aggressive approach to help homeowners find a solution for refinancing underwater mortgage loans. Banks are more willing to negotiate with borrowers who delinquent on their first or second mortgage.  Many lenders will not consider writing down loan balances or extending loan modifications unless homeowner can demonstrate that they can afford their home.  FHA Commissioner David Stevens said the government is “throwing a lifeline” to families, giving homeowners and lenders another tool to battle the problem of negative equity facing borrowers current on their mortgage.



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