November 13, 2007

Facing an ARM reset: Can you refinance with an FHA loan?

I have been reading a good blog called The Mortgage Porter, by Rhonda Porter. Rhonda is in the mortgage business so she should know a thing or three.

In a recent post someone asked if they could be approved for a new mortgage given a credit score of 600, no foreclosure however.

Yes…quite possibly! The title of this post is a question that was entered as a search that found Mortgage Porter. Someone could buy a $400,000 home with a 600 credit score if:

So, Rhonda says yes. A 600 credit score is so-so…perhaps for someone a bit over-extended, with some lates. No bankruptcies or anything really bad. Just a typical person who is struggling these days.

Okay, so Rhonda explains that an FHA purchase loan is possible, if..

No late payments or derogatory credit in the past 12 months. FHA insured loans do not use credit scores.

Base loan amount at FHA loan limit (assuming King, Snohomish or Pierce Counties): $362,790.

Just shy of 10% down or a minimum of 3% down plus closing costs with a 6% seller contribution.

Notice this is for a purchase money loan.

That got me thinking.

What about a refinance situation, if you are facing an ARM reset?

If you have paid on time, but recently had problems due to an ARM adjusting, you CAN get an FHA refi. You must have had NO late payments for six months prior to your mortgage payment and rate rising.

And you must show enough income now and in the past to qualify for the new mortgage.

This is the FHASecure program. If you can't show enough income to qualify for that payments-wise, you can't get that loan.

And there is one more issue. You must have 3% equity in your house. Uh oh.

So here is what you should know:

You can refinance with an FHA fixed loan in some cases, even if you've had problems with your mortgage
You have to have a good payment record before your ARM reset
You have to have enough income to qualify
YOu must have a sliver of equity in your house.

Filed under Blog by Richard Geller