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FHA Refinance

 For HUD purposes, there are 3 key points that will determine the maximum refinance mortgage amount: The occupancy status of the property, the use of the loan proceeds and how and when the property was purchased.

If the property was acquired by the Borrower less than 1 year before the refinance loan application and the existing lien is not already FHA insured, the maximum LTV calculation must be applied to the lesser of the original sales price of the property OR the present appraised value.

Allowable closing costs may be added to the price/value when calculating the loan amount for No Cash Out Refi’s only. Cash out refinances may not include allowable closing costs when calculating the maximum loan amount. (NOTE: for streamline refinances without an appraisal, the new base loan amount may never exceed the old FHA loan amount being paid off with the refinance.)

Expenditures for repair/remodeling of property incurred after the purchase may be added to the original sales price when calculating the loan amount – if the Borrower provides satisfactory written evidence of the expenses.

Refer to the HUD Handbook 4155.1 Rev. 5 for additional information not covered in this section.

CASH OUT REFINANCE:

  • Must be owner occupied.
  • FHA appraisal is required.
  • Borrower must qualify for loan transaction (qualify as if the loan is a purchase).
  • If property has no lien at current time, the refinance loan is considered cash out.
  • No Cash-Out refinances allowed in State of Texas.
  • UFMIP refund will apply if current lien is HUD-insured.
  • Allowable closing costs are not included in the calculation

RATE AND TERM REFINANCE:

  • Must be Owner occupied.
  • FHA Appraisal is required.
  • Borrower must qualify for loan transaction.
  • No cash back to Borrower at closing.
  • Junior lien(s) must subordinate to new 1st mortgage and the secondary lien terms must meet HUD guidelines and LTV restrictions OR the lien(s) must be proven seasoned (over 1 year) if paid at closing.
  • Junior liens less than 1 year must have satisfactory documentation that lien funds were used for home improvement. Loan proceeds may replenish Borrower’s own assets that were used for the home improvement.
  • Line of credit may subordinate, or may be included in payoff amount if seasoned over 1 year OR if opened less than 1 year, but total draws on line DO NOT EXCEED $1000.
  • FHA UFMIP refund will apply if current lien is FHA-insured.

STREAMLINE REFINANCES:

There are 3 types of Streamline refinances: (i.e. FHA to FHA):

  1. Streamline Without Appraisal.
  2. Streamline With Appraisal.
  3. Credit Qualifying Streamline.

All types of Streamlines are designed to lower the monthly P&I payment on the existing FHA loan. Borrower may receive no cash back at the closing. Unless the Title Holders to property are changing, or unless the monthly payment is increasing, the refinance transaction may be documented with minimal documentation. A “Credit Qualify” Streamline refinance will require qualifying information on total liabilities, income, and funds. Junior lien(s) must subordinate.

The following documents are required in the loan file for all types of streamline refinances:

  • Mortgage payment history on existing FHA lien (showing that the current FHA lien is in a current status (not past due) and also showing a satisfactory payment history - no more than (1) 30-day late payment within the past year. The file may contain a “mortgage only” credit report as verification of payment. (NOTE: For credit qualifying refinances, a full credit report will be required and must show the Borrower’s overall credit is satisfactory).
  • HUD forms required: (NOTE: These forms must be completed and the documents must be executed by both the Borrower(s) and the Originator.)
  • 1003 Application form (must list standard Borrower information including the employment. No assets, income, or liability information must be verified unless the transaction is a Credit-Qualify loan.).
  • 92900-B (Important Notice to Homebuyer) and 92900-A (Addendum).
  • FHA Assumption Notice Form.
  • Informed Consumer Choice Disclosure.
  • Printout from the FHA Connection website showing the Case ## Assignment and showing the Refinance Authorization information and CAIVRS.
  • A copy of the original note on the existing lien (to reflect Note Holder identity, the original loan amount – which will show whether any UFMIP was paid in cash or financed in the loan - the current note RATE and first payment date of the existing lien).
  • Satisfactory evidence of the Borrower(s) Social Security number(s).
  • If Borrower placed the current FHA loan through a non-credit qualifying assumption, Borrower must provide satisfactory written evidence that the existing lien is at least six (6) months old.
  • LDP (Limited Denial of Participation) search must be done on all parties to the loan transaction (Borrowers, Brokers, Originator, etc.) and GSA.
  • Current payoff on existing lien (for most current month).

Streamline with Credit Qualifying - Additional documentation required:

  • Full Credit Report.
  • Current pay stubs for income verification.
  • Verbal verifications of employment (or actual VOE).
  • W-2 forms (if required to analyze income).
  • Current bank statements to support liquid funds to close loan or for reserves.
  • Full appraisal required.
  • CAIVRS search on all parties to transaction.
  • Other documentation as required by Underwriter upon review of file.

Investor Refinance Guidelines:

  • Refinance using the “streamline refinance without appraisal” guidelines.
  • New loan amount is limited to sum of the principal unpaid balance, less UFMIP refund + (plus) new UFMIP.
  • No closing expenses may be added into the loan amount calculation. The investor must pay all closing expenses out of pocket.
  • Term of new loan cannot exceed the lesser of 30 years or unexpired term of current lien + (plus) 12 years.
  • Credit Qualifying” refinances may be done WITH or WITHOUT an appraisal.
  • Underwriting is performed (i.e., Verification of Income, Liability, and Assets) to ensure the Borrower(s) qualify for the new loan terms.
  • Qualifying for loan must be done when one (or more) of the following instances occurs:

Original Borrower(s) are being deleted from title and/or mortgage liability, which could trigger the “Due on Sale” clause. (The remaining Borrower(s) must qualify for new mortgage payment.)

Our Borrower took title to the FHA mortgage under an Assumption Agreement in which he has not “credit qualified” for the mortgage AND the Borrower has NOT been making the payments for over 6 months.

The term or type of the CURRENT FHA mortgage is changing resulting in a payment increase of over $50 per month (this option is only available for owner occupied refinances).

 

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