How Much Can I Refinance With My FHA Mortgage?
Must I Re-qualify to Refinance With an FHA Mortgage? - (Top)
If you're thinking about refinancing, you've already been through the mortgage qualification process when you qualified for a conventional mortgage or for an FHA mortgage. The kind of refinance loan you're looking for will determine whether you need to go through the credit-qualifying process again.
- If you already have an FHA loan and just want to lower your interest rate, you can use FHA's Streamline Refinance program. With a Streamline refinance you do not have to credit-qualify. That's right. You don't have to worry about credit history or documenting your income and employment. You only need a valid social security number as described below.
- If you're refinancing a subprime, conventional or any other non-FHA mortgage, or if you're seeking to refinance other debts besides your current mortgage into the new loan, or if you're looking to take cash out, you do have to credit-qualify. But that's not so hard either.
- You need perfect credit? Not true!
- Your credit score has to be at least 650? Not true!
- If you ever declared bankruptcy or had a foreclosure you're out of luck? Not true!
None of these things are true. To decide how much can you refinance we look at:
- Your income
- Your other monthly expenses
- Your credit history (this is important, but FHA's credit standards are very flexible)
- Your overall pattern rather than to individual problems you may have had.
Your lender will be responsible for determining if you qualify for an FHA loan, but the information below will help you understand the process.
There's one thing you need to be prepared for: your lender will need a lot of information from you. Don't let the lender's requests upset you. They're just doing their job, and it will all pay off. They must know:
- How much you earn
- Where you've worked
- Whether you're single, married, or divorced
- If you've had credit problems in then past, they'll need to know why
While only a lender can actually qualify you for a re-finance, if you follow the steps outlined here, you should get a pretty good idea of whether you might be approved. You might even become pre-qualified for an FHA loan right here!
Here are a couple key facts about FHA loans.
Maximum loan amount: By law, FHA cannot insure loans that exceed certain amounts based on the metropolitan area or county in which you live. The highest maximum FHA mortgage right now is $362,790. The lowest maximum amount available in any county is $200,160. To see what the limit is in the county in which you're interested, visit the following site https://entp.hud.gov/idapp/html/hicostlook.cfm. This site lists U.S. territories as well as states.
Maximum financing: Depending on the state where the property is located, the maximum FHA financing will be either 98.75% or 97.75% of the appraised value of the home or the amount you are refinancing plus closing costs, whichever is lower. If you are taking cash out, the loan will be limited to either 95% or 85% of the appraised value, depending upon your qualifications.
Okay. Let's get started.
The first step is meeting FHA's basic eligibility requirements. These involve some very general requirements that are pretty easy for most people to meet. The second part is meeting the qualification requirements. This is where your income, your credit history, and your savings are evaluated. It's a little more complicated than basic eligibility, but don't worry. Millions of people qualify for mortgages every year, and you can too!
Generally, to be eligible for an FHA loan, you must:
- Have a valid Social Security Number (SSN)
- Be legal resident of the United States
- Be of a legal age to sign on a mortgage in your state. There is no maximum age limit for a borrower.
Even if you are a U.S. citizen, you must have a valid Social Security Number (SSN). An individual Tax Identification Number (ITIN) is not an acceptable substitute for a SSN.
U.S. citizenship is not required for eligibility. When you indicate on your loan application that you hold something other than U.S. citizenship, the lender must determine your residency status from the documentation you provide. If you are a permanent resident alien, you must provide evidence of lawful permanent residency issued by the Department of Homeland Security, Bureau of Citizenship and Immigration Services (BCIS), formerly the Immigration and Naturalization Service (INS).. If you are a non-permanent resident alien, you must show that you are eligible to work in the U.S. by producing an Employment Authorization Document (EAD) issued by BCIS.
Your lender will decide if you qualify for a mortgage based on the "4 C's of Credit"
- Credit history
- Capacity to repay
- Cash
- Collateral
Your credit history involves what you've borrowed in the past, and how well you've paid it back. Capacity refers to your income and your ability to handle the monthly housing payments. Cash refers to money you have saved. In a typical refinance loan you don't have to pay any money out of pocket at settlement. Most costs can be included in the new loan. Collateral refers to the value of your home.
It is standard industry practice to use Automated Underwriting Systems (AUS) to evaluate loan applications. An AUS processes key information like your credit score, your monthly income, how much you want to borrow, how much cash youve saved, and the value of the property you want to buy or re-finance. Based on this information, the AUS produces a report recommending approval or denial of your loan application.
Manual underwriting involves the evaluation of your information by a person called an underwriter in the lender's office. The underwriter will apply his or her knowledge of FHA underwriting standards to your information, and make a decision to approve the loan or not.
Your lender may use either or both types of underwriting to process your loan, but there's one important thing you need to know: you can't be turned down for an FHA loan just because an AUS report doesn't recommend approval. If the AUS report doesn't recommend approval, it just means that your loan has to be processed manually
To see if you might qualify for an FHA mortgage, complete the FHA borrower qualifying worksheet. If you enter accurate information about your personal finances, and honestly answer some questions about your credit history, you'll earn an FHA prequalification approval form. You can provide this form to lenders when you're shopping for a loan.
This sheet will help you see how you do with the "4 Cs."
Credit history
Answer the following questions to see what kind of credit history you have:
|
Credit Question |
Answer |
|
Have you filed for Chapter 7 bankruptcy in the past two years or Chapter 13 bankruptcy in the past year? |
Yes
No |
|
Have you experienced a foreclosure in the past three years? |
Yes
No |
|
Are you currently delinquent on any Federal debts such as Department of Education student loans? |
Yes
No |
|
Do you currently have any outstanding judgments against you? |
Yes
No |
|
Are you currently late on your mortgage, or have you frequently been late in the past two years? |
Yes
No |
|
Are you currently late on any of your credit card, car loan or other payments, or have you frequently been late in the past two years? |
Yes
No |
Capacity
Use the following tables to estimate your monthly income and debts:
|
Income Category |
Monthly |
|
Your salary |
$ |
|
Your spouse's/partner's salary |
$ |
|
Pensions/social security |
$ |
|
Other income |
$ |
|
Total monthly income |
$ |
|
Debt Category |
Monthly Payment |
|
Credit card/car loans |
$ |
|
School loans |
$ |
|
Alimony/child support |
$ |
|
Other debts |
$ |
|
Total monthly payments |
$ |
Cash
Use the following savings categories to estimate your current savings:
|
Savings Category |
Amount |
|
Savings account |
$ |
|
Checking account |
$ |
|
Retirement fund contributions |
$ |
|
Other savings |
$ |
|
Total savings |
$ |
Collateral
The maximum amount that you can refinance will be limited by the value of your home.
How much can I refinance?- (Top)
Using the information you entered in the tables in the tables, use our simple mortgage calculator at www.ginniemae.gov/fha2_prequal/intro_questions.asp to determine how much mortgage you can afford.
