FHA Refinance: Streamline, Refinancing Out of FHA, Divorce, Removing a Borrower and Late Payments

FHA streamline refinance

An FHA streamline replaces your current FHA loan with a new FHA loan at a lower rate, with less paperwork than a standard refinance. It often doesn't require an appraisal, and lenders may not need to fully re verify your income.

Timing: your loan needs to be seasoned, generally at least 210 days since closing with six payments made.** A real benefit:** FHA requires a net tangible benefit, typically a meaningful drop in your combined rate and mortgage insurance, or a move from an adjustable rate to a fixed rate.** Mortgage insurance:** you'll pay new upfront and annual premiums, but if you refinance within three years, part of your original upfront premium is credited toward the new one.

Refinancing out of FHA

For most FHA borrowers, the bigger win is refinancing into a conventional loan to eliminate mortgage insurance. That usually takes about 20% equity and solid credit. If your home value has risen and your score has improved since you bought, you may be closer than you think.

If you're a veteran with an FHA loan, a VA Type I refinance can also remove mortgage insurance, sometimes with less equity.

FHA cash out refinance

FHA allows cash out refinancing up to 80% of your home's value, as long as you've owned and lived in the home for at least a year. It can be useful for borrowers whose credit doesn't yet fit conventional cash out, but compare the cost of new mortgage insurance carefully.

Watch for these

Costs vs savings. Divide your closing costs by the monthly savings to see how long it takes to break even. If you won't keep the loan that long, it's not worth it.** Assistance second mortgages.** If you used down payment assistance, the second mortgage may need to be paid off or approved to stay in place when you refinance.** Resetting the clock.** Starting a new 30 year loan after years of payments can lower your payment but raise your total cost. Ask about a shorter term.

From FHA to conventional

Danielle bought with FHA four years ago. Her home had gained value and her score had climbed past 720.

She refinanced into a conventional loan at a similar rate. Removing mortgage insurance lowered her payment, and the savings paid back her closing costs in under three years.

FHA Refinance Situations

Removing an ex spouse from the loan

Taking someone off the deed doesn't take them off the mortgage. To release your ex from the loan, you usually need to refinance into your own name, which means qualifying on your own income and credit.

In some cases an FHA streamline can remove a borrower, but lenders generally want proof that you've been making the payments yourself and that you can afford the loan alone. If your ex is being paid for their share of the equity, that payment can affect which refinance type you need. Bring your divorce decree early, since it often decides what's possible.

Refinancing after a late payment

Your recent mortgage history matters most. A late payment in the last few months can block an FHA streamline, and more than one in the past year often will. If you've had a late, the best move is usually to make several months of on time payments before applying. A full credit qualifying refinance or a different loan type may also be options.

Moving from FHA to conventional

The most common reason FHA borrowers refinance is to drop mortgage insurance by moving to a conventional loan once they have about 20% equity and solid credit.

Those streamline offers in the mail

FHA borrowers get the same flood of refinance mail veterans do: official looking letters, urgent deadlines and promises to skip payments. The same rules apply. They aren't from the government, nothing is truly skipped, and a lower payment from restarting a 30 year term can still cost you more. See how to read refinance letters, and compare any offer by its total cost and break even, not the payment alone.

When refinancing isn't worth it

If the savings take longer to recover than you'll keep the loan, or if you'd restart a long term without a real benefit, it may be better to wait. Sometimes the best advice is to stay where you are.

Refinancing after a divorce

Monica kept the house in her divorce, but her ex was still on the FHA loan. The decree required her to refinance within a year.

She had been making the payments herself for over a year, and her income qualified on its own. She refinanced into her own name, released her ex from the loan, and kept her payment close to what it had been.