Is it possible to refinance an fha loan into another fha loan?

Asked by R O, 94585 Thu Jan 24, 2013

First time home buyer in June 2011. Current FHA loan with Wells Fargo @ 4.25% 30yr fixed.

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, ,
Fri Jan 25, 2013
R Ojeh, yup refinancing from an FHA loan into a new FHA loan is done all of the time. It's usually done with an FHA Streamline Refinance.

An FHA Streamline Refinance can be done with or without an appraisal. The benefits of doing it with an appraisal is that the new loan amount can go up to 97.75% of the appraised value for the purpose of including the refinance closing costs & the initial funds for the escrow account. The negative is that it costs money for that appraisal & the process is a little longer (perhaps a week). The benefit of doing it without an appraisal is that there is no appraisal fee & the process is a little quicker, but you cannot include the closing costs/initial escrow account funds into your new loan amount - they either have to be paid out of pocket or for a little higher interest rate your lender or mortgage broker can give you a "closing cost credit" that can help pay for those costs. FHA streamline refinances require that the principal/interest/mortgage insurance (P&I + MI) portion of your payment needs to decrease by at least 5% - it's called the "net tangible benefit test".

You can also refinance an FHA loan into a new FHA loan without doing a streamline refinance, for example if you wanted to take cash out of up & beyond the amount of the closing costs/initial funds for the escrow account - however for a cash out refinance it's limited to 85% of the appraised value. If the streamline refinance doesn't create a 5% decrease in the P&I + MI portion, then you can still refinance doing a regular FHA "rate & term" refinance, which is also limited to 97.75% of the home's appraised value (there isn't a "no appraisal" option on an FHA rate & term refinance).

Finally, if you think you may have some equity in your home (5%), then you may consider refinancing into a conventional loan as amount of mortgage insurance on a conventional loan is cheaper than FHA's mortgage insurance. It'd be wise to compare both conventional & FHA refinance options when you begin your refinancing endeavor.

Shane Milne | Lending in all 50 states | NMLS #81195
1 vote
Thanks so much Shane!
Flag Fri Jan 25, 2013
, ,
Tue May 7, 2013
Do this all of the time. First though I would try to get you away from the FHA loan if possible. Many people save $500 a month just doing that.

I would need to have more numbers to tell you if it is a good idea or not. We need to weigh the costs (FHA fees are massive) and see if the savings per month justify it

Though a streamline would have not lender fees, there is FHA mortgage insurance fees, that need to be considered.

I would love to go over the numbers with you, there is no cost or obligation for that. Click on my picture and you can contact me.
0 votes
, ,
Thu Apr 4, 2013
Yes this is possible. However, since your original mortage was done after May 2009 you may be subject to higher levels of monthly and up-front mortgage insurance. This might wipe out some or all of the savings of going to a lower interest rate.

If you have decent credit and the home has gone up in value at all since you purchased it then I would look at switching to a conventional loan. The rates are a little bit higher and are based on your credit score and equity, but the PMI could be much lower.

Hope this helps. If I can be of assistance in quoting you a rate or running through your options please let me know.
Tony
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