When Can You Refinance an FHA Loan?

You have the option to refinance an FHA loan to reduce your monthly payments and interest rate. The FHA, Federal Housing Administration, aims to provide refinancing options to those most in need; if you can afford your loan at the current rate, a refinance may not make sense for you.

Cash -Out Refinance

You should know that the cash out refinancing options advertised by a number of lenders are not often possible through the FHA. If you have an existing FHA loan, you are limited to 85 percent of your home’s value.

Streamlined Refinance

The streamlined refinance option requires only a few documents. The refinance typically only lowers your monthly payments a small amount, and there is not a cash back option. The general guidelines include:

  • Your FHA loan in good standing
  • Must refinance to a lower rate
  • Picture identification and social security card
  • Evidence of hazard insurance

Refinance to Avoid Foreclosure

If you secured a sub-prime loan that has adjusted to a high rate you cannot afford, the FHA will work with you to refinance to a fixed rate loan so you can avoid foreclosure. You must be able to afford the loan at a lower rate, however.