FHA Underwriting Guidelines     

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FHA Streamline Refinance

FHA offers three types of refinance mortgage loans: Streamline, No Cash-Out, and Cash-Out.  We will discuss the FHA streamline refinance first since it is one of the best mortgages on the market today.  The others will be discussed further down.

Loan type Conversion:

  • 30 yr fixed to 30 yr fixed:  The new payment must be lower than the old payment.
  • 30 yr fixed to 15 yr fixed:  New payment can not be more than $50 higher.  Note: 15 yr fixed to 30 yr fixed is not allowed.
  • Fixed Rate to ARM:  Owner occupied homes only
  • ARM to Fixed Rate
  • ARM to ARM:  Rate must be lower than current loan
  • 203K to 203B

Streamline  Refinances were designed to lower monthly payments on FHA mortgages only.  They can be done with or without an appraisal, and with or without credit qualification. There can be no cash back to the borrower.

Streamline Refinance Without An Appraisal:

The new loan amount cannot be more than the original loan amount, OR more than the current principle balance plus closing cost. ... Whichever is less.   This only applies to owner occupied, as non-owner occupied borrowers can only refinance the existing balance and do not have the option of rolling in the closing costs.

The only credit verification required is a verification of mortgage payments.  This can be done with 12 copies of cancelled checks, front and back.  IF cancelled checks are available, no in-file report is required unless the underwriter prefers that method to verify mortgage payments.  Some lenders also use an in file to verify that there are no open judgments or property tax liens.

Streamline Refinance With An Appraisal:

An FHA streamline refinance with an appraisal allows the borrower to finance in the closing costs, discount points, and pre-paids provided it all fits within the loan to value limits.  The new loan amount may be the current principle plus closing costs, discount points and pre-paids, OR,  the appraised value x 97.75% (97.65%,or 97.15%, high or low cost state). Whichever is less!

IF the smallest of these two values is greater than the original mortgage balance credit verification is required.

Streamline Refinance - Credit Qualifying:

The loan amount is calculated based on the previous formulas and qualifying requires full employment verification, credit report, and debt to income ratio compliance. Typically these loans are used when the new mortgage payment will be higher, deletion of a borrower on new mortgage, or in assumptions involving due-on-sale clauses.

FHA "No Cash Out" Refinance:

This regular no-cash-out loan may be used to refinance a FHA mortgage, a VA mortgage, a Conventional mortgage or a Non-conforming loan and requires the borrower to fully qualify. Second mortgages may be included in the new loan if they are older than one year or if less than one year you must prove that the funds were used solely to repair or rehabilitate the home.  If not, paying off or including these loans would be considered a cash-out refinance.

This loan can be used to buy out the equity of an ex-spouse provided it is documented in the divorce papers.  It is still considered a no-cash-out because this equity is considered indebtedness.

IF the property was purchased less than a year ago and is not currently an FHA loan, the loan amount will be the appraised value plus closing cost, OR the original sales price plus closing cost.  Whichever is less! 

If the purchase was more than a year ago and not currently FHA, the loan amount would be calculated the same as a "streamline refinance with an appraisal".

FHA "Cash Out" Refinance:

This loan can be used to refinance a FHA loan, a VA loan, a Conventional loan or a Non-conforming loan..   Max loan to value is 85%.

The property must be owner occupied for at least 12 months with no 30 day late payments and the borrower must fully qualify.



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