To qualify for an FHA streamline refinance, the original mortgage must be an FHA loan and it must be in the name of the borrower applying for the refinance. Because the mortgage is not in your name, you cannot qualify for the FHA streamline refinance program, even though you now own the property that secures the mortgage.
Review our FHA Streamline Refinance Guide
Although you may not be eligible for an FHA streamline refinance, you may be eligible for a standard FHA refinance or conventional refinance. A standard FHA refinance, when you do not receive any proceeds from the loan, also known as a rate and term refinance, permits a maximum loan-to-value (LTV) ratio of 97.75%, as long as you have occupied the property for at least twelve months or lived in the property since you acquired it.
Review our FHA Mortgage Guide
LTV ratio is the ratio of your mortgage amount to the value of the property being refinanced. For example, if your property is valued at $100,000, you could potentially qualify for a $97,750 refinance ($100,000 (property value) * 97.5% (LTV ratio) = $97,500 (mortgage amount)).
The maximum LTV ratio is 85% for a rate and term FHA refinance if you have occupied the property for fewer than twelve months or if you have owned the property for less than twelve months and have not lived in the property the entire time.
Additionally, the maximum LTV ratio for an FHA cash out refinance, when you receive all or part of the loan proceeds, is 80%. To qualify for an FHA cash out refinance you are required to own and occupy the property for at least twelve months before you apply for the mortgage.
Review our FHA Cash Out Refinance Guide
The exception to this guideline is if you inherited the property in which case you are not required to occupy the property for a minimum amount of time as long as you have not rented out the property since you inherited it. If you rented out a property you inherited, you are required to move into and live in the property for at least twelve months before you apply for the loan.
The table below shows FHA mortgage rates and fees, including the upfront FHA MIP fee. The positive news is the FHA refinance rates are usually lower than conventional rates. We recommend that you contact multiple lenders to find the best FHA refinance terms.
The positives of an FHA refinance are that the program permits a high LTV ratio and applies more flexible qualification guidelines including a lower minimum borrower credit score. An FHA cash out refinance also enables you to take out more proceeds than a conventional cash out refinance on a two-to-four unit property (but the same amount of proceeds on a single unit property).
The downsides to the FHA program are that it requires you to pay an upfront and ongoing monthly FHA mortgage insurance premium (MIP), which are extra fees on top of your closing costs and monthly loan payment. The FHA program also applies loan limits that may restrict your mortgage amount.
In addition to the FHA mortgage program, we recommend that you consider conventional refinance options as well. If you refinance with a conventional mortgage program, you are not required to pay private mortgage insurance (PMI) as long as your LTV ratio is 80% or lower. Not paying PMI can reduce your closing costs and monthly payment compared to an FHA loan. There are also jumbo mortgage refinance programs that enable you to qualify for mortgage amounts above the FHA loan limits, which provides greater financing flexibility.
The maximum LTV ratio for a conventional rate and term refinance on a single unit property is 97% while the maximum LTV ratio for a conventional cash out refinance on a single unit owner occupied property is 80%.
With a conventional mortgage, lenders typically require you to make payments on a property that you bought or were deeded for twelve consecutive months before you apply for a refinance, but lender policies on this point can vary. You are also usually not allowed to have any late mortgage payments for the twelve months before you apply for the refinance.
The table below shows conventional mortgage refinance terms. We recommend that you compare the mortgage rate, closing costs and monthly payment for a conventional refinance to an FHA loan. Comparing multiple lenders and loan programs enables you to find the refinance option that is right for you.
FHA Refinance Guidelines: https://www.hud.gov/sites/documents/40001HSGH.PDF
FHA Cash Out Refinance Maximum Mortgage Amount: https://www.hud.gov/press/press_releases_media_advisories/HUD_No_19_114
Conventional Refinance Guidelines: https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf