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FHA Mortgage Refinance and Loan Modification Options

What are my options to refinance or modify an FHA mortgage?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

The FHA Streamline Refinance Program is usually the best option to refinance an existing FHA mortgage.  The program requires no credit score or appraisal report and does not apply a maximum loan-to-value (LTV) ratio or debt-to-income ratio.  By using more flexible qualification guidelines and requiring less documentation, the FHA Streamline Refinance Program saves you money and time when you refinance.

Because the program does not use a maximum LTV ratio, you may be able to refinance your FHA loan even if you are underwater on your mortgage, which means your loan balance is higher than your property value.  This program feature is especially helpful if your property value decreased over time.

Additionally, if your credit score declined or your monthly debt expense increased since you originally obtained your mortgage, you may still be eligible to refinance.  Instead of strictly using your credit score and debt-to-income ratio, lenders focus on your ability to afford your monthly payment and repay your mortgage.  Additionally, the program does not use applicant income limits so you may be able to qualify even if your income has increased since your existing loan closed.

Review our FHA Streamline Refinance Guide

Additionally, because FHA mortgage rates are usually lower than conventional loan rates, you may be able to reduce your monthly mortgage payment by refinancing into a more affordable loan.  The potential to lower your monthly payment is one of the main benefits of the FHA Streamline Refinance Program.  In an ideal scenario you can use your monthly savings to pay down other high cost debt you may have, which provides even more financial flexibility.

The FHA Streamline Refinance Program is provided by approved lenders. We recommend that you contact multiple lenders in the table below to learn more about program availability and qualification requirements.  Plus, shopping lenders enables you to find the best refinance terms.

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You must meet certain requirements to qualify for an FHA Streamline Refinance including the following:

You must be current on your mortgage with no low payments within the past three months

Your new mortgage payment must be lower than your current payment unless you are refinancing an adjustable rate mortgage (ARM) into a fixed rate mortgage (this is referred to as net tangible benefit)

You must demonstrate the ability to afford your new loan payment and repay the mortgage over the loan term

You must live in the property you are refinancing

Your new mortgage amount cannot exceed the FHA loan limit for your county

Please note that the FHA Streamline Refinance Program only applies to existing FHA loans. If you have a different type of loan, you may be able to refinance with an FHA mortgage but you are not eligible for the streamline program.

Additionally, cash out refinances are not permitted and your new mortgage balance can only increase by the amount of your upfront FHA mortgage insurance premium (MIP) fee.  Please note that you may receive a partial discount on the upfront MIP fee if you refinance your existing mortgage within three years of closing.  You are also required to continue to pay monthly FHA mortgage insurance on your new loan.

Other FHA Refinance and Loan Modification Options

If you cannot qualify for the FHA Streamline Refinance Program and you cannot afford your mortgage, I recommend that you contact both your lender and the FHA to learn about programs for borrowers who are struggling to make the payments on both their mortgage. The contact information for your lender is included on your most recent mortgage statement.

The contact information for borrowers who are having trouble paying an FHA mortgage is below.

FHA loss mitigation website

The FHA offers multiple programs for distressed borrowers including the FHA Home Affordable Modification Program (FHA HAMP) and the Hope for Homeowners Program (H4H).

The FHA HAMP program makes your mortgage more affordable by deferring a portion of your mortgage balance with an interest-free subordinate loan. You do not need to repay the subordinate loan until you payoff your mortgage either when you sell your home or refinance the mortgage.

For example, if your mortgage balance is $100,000, you may be able to use the HAMP FHA program to defer $25,000 of your loan. Your new monthly mortgage payment is lower and more affordable because it is calculated based on a $75,000 loan balance instead of $100,000. The $25,000 in principal becomes a subordinate loan that is not due until the $75,000 mortgage is paid in full.

In some cases, lenders may be able to provide you funds to bring a delinquent mortgage current and include the amount of those funds in the deferred subordinate loan.

The FHA H4H program is designed for struggling borrowers who may be able to afford a new FHA mortgage with a lower mortgage rate and monthly payment. In short, you may be able to use the FHA Hope for Homeowners Program to refinance your current mortgage with a new, more affordable FHA home loan.

In addition to the FHA-specific programs outlined above, I recommend that you review the resources available through HUD’s Making Home Affordable Program. HUD offers several programs including counseling and foreclosure prevention services to help to borrowers who are struggling to pay their mortgage.

Learn more about HUD’s Making Home Affordable Program

Additionally, we provide a summary of other distressed refinance programs including loan modification programs for borrowers who are behind on their mortgage. These programs may enable you to reduce your principal loan balance and monthly payment so that your mortgage is more manageable and affordable.

Review Distressed Refinance and Loan Modification Programs

Sources

FHA Streamline Refinance: https://www.hud.gov/sites/documents/4155-1_6_SECC.PDF

FHA Distressed Homeowner Resources: https://www.hud.gov/program_offices/housing/sfh/nsc/lossmit

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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