I have got an FHA mortgage but lousy credit. Can I refinance?


Fed says “no” to rate increase. Read more: “HSH.com on the most recent move by the Federal Reserve”

Q: I now have an FHA loan at 6.5 percent. My credit score is below 600 although I had like to refinance at a lower rate. What can I do to discover a better speed? My house is appraised at over $130,000 and I owe less than ,000.A: The great news is that you should be eligible for an FHA streamline refinance. HUD needs no assessment is required on the property being refinanced and no credit check, and depending on how old your loan is, the lender may not require employment or income confirmation.Here is what says about the conditions for a streamline refinance (from the HUD Handbook, section 4155.1, Chapter 6, Section C “Conditions for Streamline Refinance”):”Except for credit qualifying streamline refinances, FHA will not require a credit report. This may be, however, required by the lender as part of its credit policy. If a credit score is accessible, the lender must input it into FHA Connection (FHAC). If more than one credit score is accessible, the lender must input all accessible credit ratings into FHAC.”

There’s more:

“Effective with case numbers assigned on or after April 18, 2011, FHA no longer needs lenders to certify employment and income on streamline refinance trades.”

Please understand that “streamline refinance” will not mean there are not any costs involved in the trade, and refers simply to the quantity of documentation and underwriting the lender must perform.

FHA streamline refinance conditions

The fundamental requirements of a streamline refinance are:

  • The mortgage to be refinanced must already be FHA insured
  • The mortgage to be refinanced should be current (not delinquent)
  • The refinance must lead to a lowering of the debtor’s monthly principal and interest payments, or, under specific conditions, the conversion of an adjustable rate mortgage (ARM) to a fixed-rate mortgage
  • No cash may be taken out on mortgages refinanced using the streamline refinance process. Lenders may offer streamline refinances in several ways. Some lenders offer “no cost” refinances (no out-of-pocket expenses to the borrower) by charging a higher interest rate on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the lender pays any closing costs that are incurred on the trade.

FHA will not permit lenders to include closing costs in the new mortgage sum of a streamline refinance.

The FHA also has a “credit qualifying streamline refinance” but this is only activated when the payment would increase by 20 percent or more, when borrowers are deleted from the loan, the loan has been lately assumed by a borrower and other standards.

Locate an FHA lender here

You should contact your present servicer to see if they are able to help you; if not, HUD provides a lookup tool for FHA lenders at http://www.hud.gov/ll/code/llslcrit.cfm.