Consider an FHA Mortgage on Your Next High Loan-To-Value Refinance

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It's amazing how cyclical the mortgage business can be. FHA financing used to be a very hot mortgage product, but the program nearly went away thanks to a variety of other mortgage loans that became available. These loans made it easy for those with little to put down to get a mortgage without jumping through the hoops the government program required for approval. Those days are gone. Now FHA is the hottest ticket in town and more often than not it is the loan of choice for home purchases and refinance loans exceeding an 80% loan-to-value.

Here are a couple things you must know in order to refinance with an FHA mortgage:

• The FHA program is for owner-occupied properties with 1 to 4 units. Manufactured homes and condos involve additional scrutiny but can be approved depending on the circumstances.
• The maximum loan amount may not exceed the county limits set by FHA. These loan amounts can be found on the HUD website.
• If you are married and using only one spouse to qualify for the mortgage loan, FHA requires a credit report from the other spouse and all debt found in the credit report to be considered for approval of the mortgage application. A non-qualifying spouse's credit scores won't be considered--only the debt.
• The days of non-verifiable (stated) income have pretty much gone by the wayside. You must be able to verify your income using W-2s or 1040s.
• You may add a non-occupying co-borrower (must be a relative) to help you qualify to make the payments.
• You don't have to have perfect credit but you do need to have paid your bills on time for at least the past 12 months to qualify. Credit scores down to 500 are approvable in rare cases.
• A Chapter 13 bankruptcy will not disqualify you as long as you have paid the trustee on time for the past 12 months with no additional late payments on other debt.
• Student loans will be counted in your debt ratios unless evidence of deferment for at least 12 months can be provided.
• You must have mortgage insurance on your loan regardless of how much equity you have. FHA mortgages require an upfront Mortgage Insurance Premium (MIP) (which can be financed) and a mortgage insurance premium that you pay monthly. The one exception to the MIP requirement is a 15-year fixed mortgage with a loan-to-value of 80% or less.
• Appraisals can become an issue on FHA loans so be sure your home is in decent condition with no major missing pieces. This includes carpet, baseboards and all working equipment within the home. Lead paint, earth-to-wood contact, septic tanks, wells, and private roads can all become sticking points. If these are present expect the loan to take longer to close. Repairs may be required.

This is a very short list but it should give you a couple items to think about as you move closer to pulling the trigger on a refinance. As always, work with true mortgage professionals because what they don't know can only hurt YOU.