Can you refinance an FHA mortgage loan?

Under some circumstances, you can refinance an FHA loan.

An FHA loan is a mortgage insured by the Federal Housing Administration and provided by an FHA-approved lender. It is a good option for first-time home buyers or those with a small down payment or poor credit. Like other mortgages, an FHA loan can also be refinanced.

There are several distinguishing components to an FHA loan. They are:

• Low down payment. FHA loans usually require as low as a three percent down payment. With this type of loan, the down payment can be gifted to the borrower, which makes home-ownership more obtainable for a first-time home buyer.
• Low closing costs. Using an FHA-approved lender usually means lower closing costs than with a conventional mortgage.
• Easier qualifying. People with poor or damaged credit sometimes find it easier to get approved for a mortgage through FHA programs because the federal government insures FHA loans.
• Lower overall costs. An FHA loan can have a better interest rate, which lowers the overall cost of the loan.
• Avoiding foreclosure. The Federal Housing Administration offers programs to help avoid foreclosure in case of financial difficulties.

Refinancing an FHA loan
In order to refinance an FHA loan, several rules apply.

• The loan must already be an FHA loan. In other words, you cannot refinance a conventional mortgage into an FHA loan.
• The current loan must be in good standing and not be delinquent.
• The new loan must lower the borrower’s monthly principal and interest payments.
• There cannot be cash-out refinancing if using the streamline process. (The streamline process refers to the amount of work done by the lender. Streamlined refinancing means less documentation and underwriting done by the lender, but it does not necessarily mean there are no costs.)

Some refinanced loans are available at no cost in exchange for a higher interest rate. Also, closing costs can sometimes be rolled into the new mortgage. If you are considering refinancing, it is important to remember the closing costs involved and to look at your options for paying them to be sure that it is worth it to refinance your FHA loan.