FHA Loan Guidelines for Refinancing

FHA loan guidelines depend on wide variety factors, some of which include the year of purchase, the geographical area you live in and the type of loan you are looking for. For example, loan limits are reset each year based on the median home price of the area. There are different guidelines for refinancing loans versus loans for home improvements. When you are researching FHA loan guidelines, make sure the information is current or look for recent amendments. After the housing bubble burst in 2007-2009, several key changes were adapted. The guidelines remain flexible and subject to change based on market conditions.

Loan limitations

Prior to the legislative changes in 2009, the cash-out amount acceptable to FHA was 95% of the value of the home.  Additionally, there are loan limit restrictions  and/or interest rate changes after a restrictive loan amount placed by many lenders.  Your lender can notify you about their particular guidelines since each lender has it's own rules.  The new loan amount limitations have been implemented by the FHA to limit governmental exposure to risk in the housing market.  

Second Appraisal

As of January 1, 2009, the FHA announced it will require a second appraisal on for cash-out refinances that exceed 85% loan to value. The appraisal will be required in all cases and is not based on area. Again, this legislation is introduced to limit the FHA's exposure to declining or depressed real estate markets.

No Delinquency

To be eligible for an FHA loan refinance, you must not be delinquent on your current mortgage. The FHA extends the refinancing options to keep people in homes who have faced financial hardship, received bad loans, or are upside-down in their current situation. The loans are not intended to help those who have over-extended their credit or spending. For this reason, you must show you are credit worthy and not delinquent on your current bills. Ideally, you will have no payments more than 30 days late in the past 12 months but some exceptions can be made.

One Year Ownership

You must wait at least one year after your original mortgage to seek refinancing from an FHA secured loan. If you seek to refinance a loan you have had for less than one year, you may have options. These options will be at a lower cap, though, and may be offered on the lesser of the two appraisals. In most cases, it will be worth it to wait a full 12 months to secure the best refinancing loan  you can get.

Miscellaneous Regulations

    * You must occupy the property. For example, you will not be able to refinance a loan on a second home.
       
    * The property must be a single family home or a two unit property. The refinancing is not available for 3-4 multifamily residential properties.
       
    * Loan limits will apply per area. This is based on the median home price in your county. A complete list can be found on the FHA website. Your approved FHA lender may also have a list.
       
    * You will be subject to a credit report and must be found credit worthy. Typically a minimum credit score of 620 will apply with no recent bankruptcies or foreclosures.
       
    * If you use a co-signor, the co-singor must live in the home. You cannot have a person who does not live with you cosign in order to meet requirements.