The FHA Refinance Process

Determine what kind of loan you have
Determine what you are trying to do
Figure out how much you can afford
Shop for a loan
Applying for your FHA loan
Sign papers
Figure out how much money you need at settlement

You already own a home, so you're at least somewhat familiar with the mortgage process. If you've never refinanced through FHA you might think that it's more complicated because you're involved with a government agency. Well, you'll be pleasantly surprised to learn that refinancing with an FHA loan is really no different than than the process of refinancing with any other loan. Of course, you have many more protections and it will be easier to get qualified with FHA.

Determine what kind of loan you have - (Top)

If you already have an FHA loan, you have a few more options for refinancing than if you than if you have a conventional or other non-FHA loan. Ask your lender.

Determine what you're trying to do - (Top)

Are you looking to take advantage of lower interest rates? Are you looking to consolidate some credit card debt or a home equity loan into one single mortgage? Are you looking to take cash out of your property? Your refinancing goals will determine what kind of refinance loan you want to apply for.

Figure out how much you can afford - (Top)

What you can afford depends on your income, credit rating, current monthly expenses, down payment and the interest rate. There are some online tools you can use, and some tools that your real estate agent can help you with, but it's best to visit an FHA-approved lender to find out for sure.

Compare the advantages and considerations of owning versus renting using this calculator.

You should remember that prequalification (an informal estimate of how much you might borrow) is just to give you a preliminary idea of what you can afford, and to identify any major problems that you will want to fix. It's not a guarantee that you will be approved for a loan-but you will want to get pre-qualified to avoid any surprises.

• State regulatory authorities. Some states require licensing of home inspectors.
• Professional organizations. Professional organizations may require home inspectors to pass tests and meet minimum qualifications before becoming a member.
• Phone book Yellow Pages. Look under "Building Inspection Service" or "Home Inspection Service".
• The Internet. Search for "Building Inspection Service" or "Home Inspection Service."
• Your real estate agent. Most real estate professionals have a list of home inspectors they recommend.

Shop for a loan - (Top)

Save money by doing your homework. Talk to several lenders, compare interest rates, and negotiate or bargain to get a better deal. Consider getting pre-approved for a loan.

Why ask for an FHA mortgage loan? There are many reasons to ask your lender for an FHA loan instead of a conventional loan or an expensive, risky sub-prime loan.

• Lower cost - FHA loans have competitive interest rates because the the Federal Government insures the loans. Always compare an FHA loan with other loan types.
  
  
• Smaller down payment - The FHA offers a low 3% down payment, and that money can come from a family member, employer or charitable organization. Many other loans don't allow this.
  
  
• Easier to qualify - Because the FHA insures your mortgage, lenders are more willing to give loans with lower qualifying requirements, so it's easier for you to qualify.
  
  
• Less than perfect credit - Even if you have had credit problems, such as bankruptcy, it's easier for you to qualify for an FHA loan than a conventional loan because FHA insures your mortgage.
  
  
• More protection to keep your home - The FHA has been around since 1934 and will continue to be here to protect you. Should you encounter hard times after buying your home, the FHA has many options to help keep you in your home and avoid foreclosure.

Estimate your loan amount, down payment, and closing costs using this calculator.

Applying for your FHA loan - (Top)

The process is pretty much the same as your original mortgage. After selecting a lender, you'll meet with a loan officer at a convenient place like your current residence or your real estate agent's office. The loan officer will help you complete a refinance application and have you sign a several forms authorizing the lender to verify (check on) your employment, income and savings. Using that information, your lender will order an FHA case number, an identification number specifically for your loan application.

The lender may order an appraisal to find the value of the property and its condition. An FHA appraisal is no different than other appraisals. The lender will review the appraisal, to determine if the value of the property supports the sales price and to see if any property repairs are required. The lender then makes a decision on your application.

Sign papers - (Top)

You're finally ready to go to "settlement" or "closing." Be sure to read everything before you sign. In addition to signing a lot of documents, you may need to bring some extra money for certain closing costs.

Calculate how much money you need at settlement - (Top)

The first page of the HUD-1 Settlement Statement (shown in the sample below) summarizes all the costs and adjustments for the borrower and seller. Section J is the summary of the borrower's side of the transaction and Section K is the summary of the seller's side of the transaction. You may receive a copy of the seller's side, but it is not required.

Section 100 summarizes the borrower's costs, such as the contract cost of the house, any personal property being purchased, and the total settlement charges owed by the borrower from Section L.

Beginning at line 106, adjustments are made for items (such as taxes, assessments, fuel) that the seller has previously paid. If you will benefit from these items after settlement, you will usually repay the seller for that portion of the cost.

Here is an example for you to use in making your own calculations:

In this example, the cost of the house is $100,000 and the borrower's total settlement charges (from Section L, Line 1400) are $4,000. The settlement date is July 1. Here the borrower has agreed to pay the seller for the $40 Home Owners' Association dues that have been paid for the month of July and for 25 gallons of fuel oil left in the tank. This is added together for a gross (total) amount due from the borrower of $104,065.

Section 200 lists the amount paid by the borrower or on behalf of the borrower. This will include the deposit of earnest money you put down with the agreement of sale, the loan(s) you are getting and any loan you may be assuming.

Beginning at Line 210, adjustments are made for items that the seller owes (such as taxes, assessments) that you as the borrower will pay after settlement. The seller will usually pay you or credit you for this portion at settlement.

In this example, the borrower paid an earnest(good faith) deposit of $2,000 and is getting a loan for $80,000. A tax of $1200 and an assessment of $200 are due at the end of the year. The seller will pay the borrower for six months or one-half of these amounts. Line 220 shows the total $82,700 to be paid by or for the borrower.

Section 300 reflects the difference between the gross amount due from the borrower and the total amount paid by/for the borrower. Generally, line 303 will show the amount of cash the borrower must bring to settlement.

In this example, the borrower must bring $21,365.00 to settlement.

Estimate your loan amount, down payment, and closing costs using this calculator.