FHA Refinance Loans - Everything You Need to Know

FHA Refinance Options

CapCenter offers three main FHA Refinance options. We have your back whether you're refinancing to save money or you'd like to tap into your home's equity.

FHA Refinance (No Cash Out)

Most seek an FHA No Cash Out Refinance with the goal of reducing their interest rate and monthly mortgage payment. Another common goal is to shorten the loan term to pay off a mortgage faster.

FHA Streamline Refinance

An FHA Streamline Refinance is a no cash out refinance, but it is only an option for people with an existing FHA loan. This product has less-stringent documentation requirements than traditional FHA refinances. Streamlines may not require a credit check or appraisal since the FHA has previously approved you for a loan.

FHA Cash Out Refinance

FHA Cash Out Refinances allow homeowners to convert their home's equity into cash. Here are some common motivators for a FHA Cash Out Refinance:

• You want to consolidate your debt under one loan
• You want to pay off high-interest credit card debt and take advantage of a lower mortgage interest rate
• You need cash to fund a home-improvement project
• A divorce requires you to refinance and pay out a former spouse

What are the advantages to FHA Refinances?

Low Minimum Credit Score

FHA loans require a minimum FICO score of 580. In contrast, Conventional loans typically require a credit score of at least 620. FHA loans also don't have credit score fees like Conventional loans for people with a FICO score under 780. CapCenter still requires a credit score of 620 for FHA loans.

High Debt to Income (DTI) Limits

Your debt to income ratio shows how much you owe each month compared to your monthly income. This includes borrowing money for a house, credit cards, child support, and alimony. FHA refinances have a less-stringent DTI requirement compared to Conventional loans.

Low Down Payment / Equity Requirements

FHA loans only require 3.5% equity for qualification. When buying a home, this means that you only need to make a 3.5% down payment. Most Conventional loans require a down payment of at least 5%.

What are FHA Refinance requirements?

FHA Credit Score Requirement

FHA Refinance and Purchase loans require a median credit score of 580 to qualify. Many lenders, including CapCenter, impose a higher minimum credit score. CapCenter's minimum credit sore is 620.

A tri-merge credit report is ordered for all borrowers to determine your credit score. This credit report provides credit scores as reported from all three major credit bureaus: Experian, Equifax, and TransUnion. The qualifying credit score for your refinance application is calculated as the lowest median score across all borrowers.

FHA Debt-to-Income (DTI) Requirement

FHA refinance loans allow a debt to income ratio of 55% or less. This means you can use 55% of your monthly income to pay off debt. Conventional loans have a stricter debt to income requirement of 45%.

FHA Maximum Loan Amount Requirement

FHA mortgages are subject to a maximum loan amount requirement that varies by location. You will need to seek other loan options if you require a loan amount above the FHA imposed maximum loan limit.

Below, we've provided 2024 maximum loan amounts for common CapCenter markets. You can find the FHA maximum loan limit for your county on the HUD website.

What loan terms are available for an FHA Refinance?

FHA home loans are only available as Fixed-Rate mortgages. This means that your interest rate will not change for the entire life of the loan. CapCenter currently offers the following loan terms for FHA loans:

• 30 Year FHA Refinance
• 15 Year FHA Refinance

Do FHA Loans have mortgage insurance?

Upfront Mortgage Insurance Premium

FHA Loans require an upfront payment of mortgage insurance, assessed as 1.75% of your loan amount. You can finance upfront MIP into your loan amount or pay it in cash when you close. Most people elect to finance upfront MIP and avoid additional cash to close.

Monthly Mortgage Insurance Premium

FHA loans also require MIP payments with your monthly mortgage payment. MIP ranges from annual rates of 0.45% to 1.05% depending on your equity and loan term. Borrowers must pay Monthly MIP for at least 11 years and may have to continue paying it for the entire life of the loan.

Will I pay closing costs on an FHA Refinance?

CapCenter offers ZERO Closing Cost FHA Refinance loans. We cover all traditional closing costs for all loans and also cover recordation taxes / fees on refinances. For an FHA refinance in Virginia, we estimate average savings of around $4,000 when you use CapCenter. Check out our FHA Refinance Calculator to understand how we calculate your savings.

Should I get an FHA mortgage when I refinance?

Many believe that a Conventional loan is always the best option if they qualify; this is not always the case. Sometimes FHA loans can have a lower rate since they avoid expensive credit score fees assessed on Conventional loans.

An FHA loan may be a great option for you if any of the following apply.

• You have a credit score below 700.
• You may require an FHA loan if you're working to pay off other debts, exceeding 45% of your monthly income.
• You have less than 5% equity in your home.