FHA Refinancing Options: Cutting Your Rate and Reducing Your Balance

 FHA Refinancing Options: Cutting Your Rate and Reducing Your Balance

When looking to refinance, you'll often be bombarded by countless advertisements from a variety of mortgage professionals. Some offer no-appraisal options, while others promise no-closing cost alternatives. So, how do you know which refinance product is right for you? The answer: it depends on your financial goals and needs.

To help you better understand which refinance program best meets your unique situation, here are brief overviews of two of the most common options: the FHA Streamline Refinance and the FHA Positive Equity Refinance.

1. FHA Streamline Refinance

Designed by the Federal Housing Administration, the FHA Streamline Refinance is a special mortgage product reserved for FHA-insured borrowers. The program allows homeowners to adjust their interest rate and principal terms, while bypassing many of the traditional underwriting requirements. This means: no new documentation, no new credit checks, and, most importantly, no new home appraisal. This is particularly good news for underwater homeowners, who may owe more on their homes than what they are currently worth.

Best of all, applying is quick and easy. All that's needed to qualify is:

  • An FHA-insured mortgage
  • A spotless loan payment history for the past 12 months
  • A record showing you have not refinanced within the past 210 days

In addition, applicants must demonstrate that the FHA Streamline Refinance will result in a net tangible benefit or help the borrower save a significant amount of money. Simply put, a borrower's monthly mortgage payment must decrease by at least 5%.*

2. FHA Positive Equity Refinance

The FHA Positive Equity Refinance is another Federal Housing Administration refinance option for borrowers. PennyMac is one of the leaders in offering this product. Unfortunately, we're limited by the program to offering it only to our current customers whose loans we service.

Reserved for non FHA-insured homeowners, the FHA Positive Equity Refinance helps buyers who are current on their mortgage payments, but may owe more on their homes than what they're worth.

Under the program, qualified borrowers will receive a fixed-rate, 30-year mortgage in addition to a reduction in their loan balance, totaling 10% or more. Homeowners will also not be subject to closing costs.

To determine if you qualify, make sure you meet the following criteria (as outlined by MakingHomeAffordable.gov):

  • Your mortgage is not owned or guaranteed by Fannie Mae, Freddie Mac, FHA, VA, or USDA.
  • You owe more than your home is worth.
  • You are current on your mortgage payments.
  • You occupy the house as your primary residence.
  • You are eligible for the new loan under standard FHA underwriting requirements.
  • Your total debt does not exceed 55% of your monthly gross income.
  • You must not have been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering, or tax evasion in connection with a mortgage or real estate transaction.

An FHA Refinance Recap

Whether you seek to cut your rate or reduce your balance, the FHA may have a refinance product that's just right for you.

To learn more about the FHA Streamline Refinance, the FHA Positive Equity Refinance, contact one of our PennyMac loan specialists today.

* By refinancing your existing loan, your total finance charges may be higher over the life of the loan.