FHA Refinance

FHA refinance mortgages extend opportunities to people with bad credit who need a fixed rate or improved term from refinancing their home. According to Mortgage Refinance Nationwide Blog, “FHA refinancing is the best opportunity for homeowners to lower their payment monthly without damaging their credit with a loan modification or forbearance . The FHA 203b was introduced for cash out refinancing and the 203k was created to help people finance rehabilitation and significant home improvements.

FHA Making Subprime Loans

With conventional lenders tightening their belts on their lending requirements, subprime loans are pretty much a thing of the past. This leaves a lot of current holders of subprime loans very few options to avoid foreclosure when their rates reset. However, the FHA has stepped up and is currently assisting subprime borrowers by allowing them to refinance to fixed-rate FHA loans that have low rates.

National Mortgage News reported last month that Federal Housing Administration-insured loans have gained a market share greater than 10 percent, a big jump for an agency overshadowed during the housing boom. "Since September 2007, FHA has helped pump more than $76.1 billion in mortgage activity into the housing market," FHA Commissioner Brian Montgomery said. That figure includes $30.3 billion of loans to conventional borrowers who refinanced into FHA loans to avoid a huge jump in their mortgage payments when their old loans reset.

Should I Refinance with FHA?

"The unfortunate truth is that many consumers have been trying to outguess the market, waiting for it to hit bottom, but now find themselves in the unenviable position of missing the most recent interest rate low water mark. Trying to outguess the market is a losing proposition. Consumers should instead set a rate at which they feel it is equitable to get into the market, and when rates hit that point, jump in. The beauty of mortgages is that if rates fall, those consumers can always refinance and save money, while enjoying the comfort and security of a fixed rate in the meantime," says Quicken Loans Chief Economist Bob Walters.

On Jan. 1, 2009 the temporary $729,750 limit on loans in high-cost markets that can be insured by the Federal Housing Administration or purchased by Fannie Mae and Freddie Mac will DROP were scheduled to revert back to $625,000, but it appears Congress has made the increased FHA loan limits permanent.

Even if you're not facing foreclosure, you could probably end up paying a lower interest rate through FHA and possibly be able to roll your second mortgage into a single mortgage and get fixed rates with FHA. With a FHA mortgage refinance, there is no pre-payment penalty. And, FHA offers 95 percent loan to value for cash out transactions, as well as rate and term refinancing to 97 percent loan to value.

And, while FHA recently introduced some FICO credit score requirements, they are still much more relaxed than those of Fannie Mae and Freddie Mac. FHA still allows bad credit refinancing, but they are in the process of implementing risk based insurance.

Now is the time to refinance into a FHA mortgage loan. FHASecure, one of two foreclosure rescue programs, is due to expire on December 31, 2008. You'll still be able to refinance under the second foreclosure rescue plan, HOPE for Homeowners, but you'd have to share your equity with FHA and the loan limits will be dropping soon, as well.