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After you’ve lived with your initial FHA mortgage terms for a while, it’s wise to regularly assess if an FHA loan refinance may be beneficial. An FHA simple refinance may offer lower interest rates or reduced monthly payments, and you can switch from an adjustable-rate mortgage (ARM) to a fixed rate. But, there are some requirements to consider before getting started.
Let’s dive into the guidelines and benefits to help you decide whether an FHA simple refinance is the right choice for you!
FHA Simple Refinance Guidelines and Requirements
Think of the FHA simple refinance process as being similar to when you first obtained your FHA loan. While the appraisal and paperwork may be slightly less extensive, the overall guidelines and requirements will be close to your previous FHA loan experience.
You likely meet FHA simple refinance guidelines if:
- Your current mortgage is already an FHA loan.
- You have a clean record of making on-time mortgage payments.
- Your home is considered your primary residence.
- You have at least a 580 credit score.
- Your home passes an FHA appraisal.
Simple refinances of FHA mortgages call for a credit check as well as an appraisal of the property through thorough financial and property assessments to ensure its current value. FHA loans are also intended only for primary residences, so refinancing before turning your home into a rental property isn’t allowed.
On average, an FHA simple refinance takes between 30-45 days to complete. However, unlike when you first applied for a mortgage, you already own your home. Therefore, the wait is just to finalize the paperwork and secure the new terms, without the added complexity of purchasing a property.
Keep in mind that an FHA simple refinance cannot be used to receive cash-out funds. The only FHA refinance type that allows a homeowner to directly access cash from their home equity is an FHA cash-out refinance.
Benefits of a FHA Simple Refinance
If eligible, homeowners and their finances can benefit greatly from an FHA simple refinance, including:
- Lower Interest Rate: Like other refinancing options, an FHA simple refinance can help lock in a new, lower interest rate.
- Reduced Mortgage Payments: One of the benefits of refinancing after some time is the potential to secure lower mortgage payments.
- Flexible Credit Requirements: Compared to conventional refinancing options, FHA simple refinance has more lenient credit requirements.
- Option to Skip Mortgage Payments: Depending on the timing of the refinance, you could skip 1-2 months of mortgage payments until your new terms kick in.
- Minimal Costs: Unlike other types of refinancing, an FHA simple refinance allows you to roll in the closing costs into the loan amount. This means less upfront costs for you!
- Switch Rate Types: An FHA simple refinance also allows you to switch from an adjustable rate to a fixed rate, resulting in more predictable terms and monthly payments.
Speaking to a trusted lender is essential to understanding your loan eligibility because they can clearly express the potential benefits you stand to gain based on your specific financial situation and goals.
» MORE: See today’s refinance rates
Common FHA Simple Refinance Misconceptions
Finding easy-to-consume information and reliable firsthand experiences about FHA simple refinances online can be challenging, so here are some of the main misunderstandings borrowers may have about FHA simple refinancing.
Strict Eligibility Requirements
As mentioned above, an FHA simple refinance has guidelines similar to your original FHA loan, so qualifying for the refinance shouldn’t be any more difficult. In fact, lenders are generally a bit more lenient than they are with the initial loan process or even with a conventional loan process.
Costly Upfront Costs
Due to an FHA simple refinance requiring a new appraisal, many have the misconception that the process will be quite costly. Conveniently, appraisal fees and even loan origination costs can be rolled into the principal of the loan, reducing the amount you’ll have to spend at one time and instead spreading it across your monthly mortgage payments.
Negative Impact on Credit Score
Any type of refinancing, not just FHA simple refinancing, may result in a temporary dip in a borrower’s credit score. However, this isn’t for the long term! Making on-time mortgage payments, in addition to your other obligations, will likely result in an overall increase in your credit score within a few months of the refinance.
If you’re unsure whether an FHA simple refinance is best for you, speak to a trusted FHA lender and you may receive the needed clarity to make an informed, confident decision. FHA lenders can assess your finances, explain the various FHA refinance options and guide you toward the refinance type that makes sense for your situation.
More Reading
6 Types of FHA Refinances: Which Is Best for You?
How to Apply For an FHA Loan in 4 Steps
FHA Streamline Refinance: Rates and Requirements 2024