How to Refinance Your Home With Current FHA Mortgage Rates

Take advantage of lower mortgage rates with an FHA refinance.

You might want to refinance your mortgage for a couple of reasons. By refinancing, you can lock in a lower interest rate and lower your monthly payment — and you can also take cash out if you have enough equity in your home. If you want to refinance your home, consider an FHA refinance — its benefits and protections are attractive to many homeowners.

Refinancing might be tricky if your credit isn’t up to snuff, you don’t have much equity or your home isn’t currently worth the amount of your mortgage. Thanks to the FHA, however, refinancing your home loan, even in situations like those, is a realistic option. Read on to learn more about FHA loan requirements and get the scoop on current mortgage rates.

Current FHA Refinance Rates

Current interest rates for a 30-year fixed FHA refinance are hovering around 3.5 percent, according to Mortgage News Daily.

If an FHA refinance sounds like a good fit for you, visit the U.S. Department of Housing and Urban Development website’s lender list to find an FHA-approved lender near you. Review these FHA refinance programs and decide which one best suits your financial situation.

Learn: When to Choose an FHA Refinance Over a Conventional Mortgage

1. FHA Streamline Refinance

You can use an FHA Streamline loan only to refinance an existing FHA loan. You’ll find the approval process is faster with this type of loan than a typical refinance because the lender requires less documentation — hence the name “streamline.”

Some lenders offer borrowers the option to refinance an FHA loan without any out-of-pocket expenses. They do this by charging a higher interest rate and paying for the closing costs.

Because an FHA Streamline refinance doesn’t require a new home appraisal, it’s a good option if you owe more on your mortgage than your home is worth. To qualify for this refinance, however, you must be current on your mortgage payments.

2. FHA Cash-Out Refinance

An FHA Cash-Out refinance gives you access to cash that’s tied up in your home, and FHA loan limits go up to 85 percent of your home’s value. You can use cash-out funds toward home improvements, paying off high-interest debts like credit cards or funding your or your child’s education. You will need to meet the following criteria and provide documentation to get this type of FHA refinance:

  • Proof that you’ve made payments on all your mortgages for the past 12 months
  • Six months of mortgage payments on any existing mortgage for the property
  • Must live in the home as your principal residence for at least 12 months
  • Enough equity in the home to cover what you cash out

Here is what FHA Cash-Out refinance doesn’t require:

  • A mortgage — You can apply for FHA Cash-Out Refinance allowed even if you own your home free and clear.
  • A specific use for the proceeds — you can use the cash for anything you want.

See: Ways to Avoid Paying a Loan Origination Fee

3. FHA Simple Refinance

An FHA Simple refinance is a no-cash-out refinance of an existing FHA-insured mortgage. With this type of refinance the new mortgage pays off the old mortgage, which might be a good choice if you’re already in an FHA loan and want to lower your mortgage rate.

And because you can roll borrower-paid costs — like repairs required by the appraisal — into the mortgage, it’s also a good choice if you don’t have a lot of funds available. The maximum loan-to-value ratio for an FHA Simple refinance is as much as 97.75 percent of your home’s value if you’ve lived in it for at least 12 months. Here is what you need for an FHA Simple refinance:

  • An appraisal
  • Payoff statement for your existing mortgage
  • Proof of owner-occupied principal residence or HUD-approved secondary residence
  • Up-to-date mortgage payments

Find Out: 7 Times When Refinancing Your Mortgage Isn’t Worth It

4. FHA Rehabilitation Mortgage

An FHA Rehabilitation Mortgage, known as the 203(k) Rehab loan, is for homeowners who want to make repairs and improvements to their existing home. You’ll have single mortgage to cover the debt of the home and the repairs it needs.

Once the refinance is complete, the lender puts the money that will be used for repairs or renovations in an escrow account and releases it to the contractor as the work is done. You can make changes to your home with this mortgage ranging from minor updates to almost complete demolition. One caveat is, however, that you must leave the foundation system in place.

Up Next: 7 Tips to Refinance a Mortgage With Bad Credit

Sarita Harbour and Kyle James contributed to the reporting for this article.