How to Short Refinance through the FHA

A short mortgage refinance through the FHA could be an option to a short sale.

A home owner may find himself in a situation where the value of his home is less than what he owes on his current mortgage. A short refinance through the FHA will allow the home borrower to refinance up to 96.5% of the current value.

This allows the homeowner to continue to stay in his house and make mortgage payments that reflect the current home value.

In order to take advantage of a short refinance, your current lender has to be agreeable to writing off any mortgage debt in excess of the amount you refinance.

In order to qualify for a short refinance through the FHA, there are certain guidelines that you need to comply with.

1) There must be no late payments on your current mortgage and the loan must continue to remain current during the process of refinancing.

2) The current lender must agree to except the proceeds from the FHA is full and final payment and agree not to pursue the FHA or you for the recovery of any remainder amount. He must execute a non-recourse agreement stating that they will not pursue a deficiency judgment against you.

3) You will need to order a professional appraisal to determine the current value of your home.

4) You must qualify for refinance according to the FHA guidelines.

The FHA the mortgage lender will require documented proof of financial hardship. This documented proof need to imply that imminent default on the mortgage is due if the mortgage is not refinanced to better terms. The following documents may be required:

1) a signed letter stating your circumstances of financial hardship and the reasons for requesting a short refinance.

2) Copies of pay stubs or itemized deposit advice for the most recent months for as far as up to 6 months.

3) Copies of bank statements are past 3 to 6 months.

4) Documentation of all income and debt obligations such as credit card debt, other loans etc.

5) Copies of income tax returns for past three years.

The drawback to a short refinance is a possible hit to your credit score. Check this with your lender and whether he will be reporting a ‘settled’ debt to the credit agencies.

Benefits of Refinancing with FHA

Advantages of Refinancing with FHA Home Loans

1) FHA offers competitive interest rates. There is not much difference between competitive rates that you can get on a conventional mortgage to an FHA mortgage.

2) The borrowing limit on an FHA home loan has been enhanced in keeping with the limit that is applicable to a Fannie May home loan. You can borrow $271,050 – $729,750 on a home mortgage in 76 high price counties for a one-family home. On an FHA reverse mortgage you can borrow a maximum of $625,000. The limits on a 2 – 4 family home are even higher.

3) As of last January 2009 borrowers were able to refinance 96.5% of the total purchase price with putting down only 3.5% as down payment upfront.

4) In a time when zero down payment mortgage loans are scarce or absent from the market, special programmes in certain areas allow zero down payment and hundred percent financing of an FHA home loan by combining a second mortgage at favorable terms.

5) The debt to income ratio allowed is much higher than the one imposed on conventional home loans and can be as high as 50 to 60%.

6) The requirements of the state of health of the home and the demand for repairs as being relaxed to quite an extent making it easier for the seller to sell to buyers who are using an FHA home loan.

7) The FHA loan is backed up by the Federal and Housing Administration which makes it a safer bet for the mortgage lender to refinance your mortgage using an FHA loan.

8) The mortgage insurance that the borrower is required to pay is much less than a Private Mortgage Insurance payment that may be required in case there is less than 20% down payment.

9) FHA home loans permit a very low down payment and in some instances, a zero down payment.

10) FHA loan approval calls for a less strict credit check so getting approved for a refinance will be that much easier. A credit score of 620 was acceptable when conventional markets ask for a 680 credit score minimum.

11) FHA loans are assumable. This makes it easier to sell to someone in the future with low interest rate mortgage even if the interest rates on a conventional mortgage have become higher.

12) FHA loan is more forgiving since it allows a person to apply for a loan just 2 years after a chapter 7 bankruptcy and 3 years after a foreclosure.

13) The FHA home loan underwriting requirements are much more lenient than conventional home loans. A down payment of 3.5% is lower than the 5%-20% required on a conventional loan.

14) Cash out refinance with an FHA loan is also more favorable since it demands a built up equity of 20% as opposed to the 20% of conventional loans.

15) FHA loans offer special programs in certain counties such as no-down payment by providing a second mortgage on favorable terms.

There are mainly three kinds of refinance options that the FHA offers to homeowners.

Streamline FHA Refinance

The streamline refinances available only to existing FHA home loan borrowers. The streamline refinance process makes it simpler and faster for existing FHA homeowners to refinance to better interest rates will reduced paperwork and documentation as well as processing time.

No cashout FHA Refinance

No cash out FHA refinance provides our home owner to convert his conventional mortgage loan, really loan or an FHA mortgage into a new traditional FHA home loan.

Cashout refinance

The FHA also offers cash out refinance to homeowners which allow the homeowners to refinance to a higher loan to value ratio. This provides the homeowner will surplus cash for necessary expenses.

FHA Streamline Refinance Loan Process

What is the FHA streamline refinance process? How can you qualify for the FHA refinance process?

An FHA streamline refinance loan is exceptional lending protocol debt is supposed to make the process of refinancing a mortgage more convenient and faster than any other way of refinancing. This makes the FHA streamline refinance loans an extremely desirable way of refinancing. Here is some basic information that you should know about this refinance process.

Qualification for the FHA streamline refinance loan

Before you can even consider refinancing your mortgage through the FHA streamline refinance loan you should know that the only people who can qualify for this kind of a refinance process are those borrowers who already have an FHA mortgage. Any other mortgage loan does not qualify for the FHA refinance process.

Also, the only kind of refinance that is available is refinancing to lower your monthly payments. FHA streamline refinance loans is not offer any solution to people who want to do a cash out refinance on the basis of the built-up equity in their home. You can only use an FHA streamline refinance loan to reduce the monthly mortgage payments.

Documentation requirement of the FHA streamline refinance loan

One of the most attractive features of the FHA streamline refinance loan is that the documentation required is extremely basic. Since this kind of refinance is only open to current FHA mortgage borrowers, most of your important documents and information is already submitted with the lender. Less of documentation makes the process more convenient, easier and faster to process.

Approval process for the FHA streamline refinance loan

The approval rate for an FHA refinance is extremely high. Usually when you apply for a refinance through the FHA they will not re-verify your income or your credit report. The main thing that is considered is your payment history with your existing FHA home loan. When you first applied for the FHA mortgage and got approved you submitted also important documentation then. You got your income verified and your credit checked to see if it was good enough to get approved for the home loan. As long as you stayed current with that original mortgage it is not considered necessary to check everything all over again. This lack of verification also speeds up the refinance process and increases the chances of approval.

Closing costs for an FHA streamline refinance loan

The matter where you refinance your home loan there will be closing costs involved. The closing costs an FHA streamline refinance loan is a way to give an incentive to lenders to offer this form of refinancing to their borrowers. Since the closing costs on a mortgage also constitute profit for the lender with whom you might have a mortgage, he has some incentive to make this offer available to you.

Offering an incentive to the mortgage lenders is important since participation by them in any federal program including the FHA streamline refinance loan program is completely voluntary.

However, the FHA sets a cap on the maximum amount that a mortgage lender can charge as closing costs. This is advantages to the borrower since it means that even the closing costs are regulated according to the federal law you are protected from unreasonable and inflated closing costs.