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FHA Mortgage Refinancing for People with Bad Credit Ratings

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Credit Scores as Low as 500! Rates Remain Low!


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Updated Guidelines on FHA Mortgages for People with Bad Credit

Credit Standards for FHA Mortgage Programs: The Federal Housing Administration made changes recently in their guidelines in an effort to curb defaults and delinquencies. HUD approved a minimum credit score to the standards for buying and refinancing, but the minimum is still only 500. The Agency understands that many consumers have experienced credit adjustments because of foreclosures and bankruptcies. Most FHA lenders look for minimum credit scores of 580 to 620 but FHA refinancing with bad credit is still possible when lenders have the ability to manually underwrite some loans with a Direct Endorsed Underwriter. Manual underwriting can be critical to approve FHA mortgages for people with bad credit because it enables loan companies, brokers and banks to consider genuine hardships and compensating factors. See More on FHA Mortgage Bad Credit.

Moratorium on Risk-Based Premiums for FHA Mortgage Insurance

The FHA had implemented risk based mortgage insurance on July 14, 2008. However, in response to the continued housing and foreclosure crisis, President Bush signed into law the Housing and Economic Recovery Act of 2008.

Bad Credit is Allowed with FHA
Among the provisions of that legislation is a one-year moratorium on the implementation of FHA's risk-based premiums beginning October 1, 2008. As a result, FHA will no longer base its mortgage insurance premiums on the combination of credit bureau score and loan-to-value (LTV) ratio on any FHA loan taken out after October 1, 2008, and Mortgagee Letter 2008-16 is currently rescinded in its entirety.

Now, FHA will charge an upfront premium in an amount equal to the following percentages of the mortgage:

  • Purchase Money Mortgage and Full-Credit Qualifying FHA Refinancing = 1.75 Percent
  • FHA Streamline Refinance (all types) = 1.50 Percent
  • FHASecure (Delinquent Mortgagors) = 3.00 Percent

Annual Premiums: An annual premium, shown in basis points below, to be remitted on a monthly basis, will also be charged based on the initial loan-to-value ratio and length of the mortgage (except for FHASecure delinquent mortgages) according to the following schedule:

  • Purchase Money Mortgages, Full-Qualifying Refinances, and Streamline Refinances :
  • LTV

    Annual for Loans >15 Years)


    Annual for Loans < 15 Years

    < 95


    < 90


    > 95


    > 90


  • FHASecure (delinquent mortgagors):


    Annual (all loan terms)

    < 95


    > 95


Refinancing Delinquent Loans into FHASecure
For borrowers refinancing delinquent non-FHA ARMs the upfront mortgage insurance premium (UFMIP) is set at 3.00 percent of the base loan amount (loan amount excluding UFMIP) regardless of the loan-to-value (LTV) ratio. The loan-to-value will determine the annual premium.

Borrowers who refinance their delinquent non-FHA ARM loan into FHASecure and subsequently wish to refinance to another FHA-insured mortgage must use a refinance product that requires full qualifying (e.g., a rate and term refinance). Once the FHA-to-FHA full qualifying refinance is insured, these borrowers will be able to take advantage of FHA's Streamline Refinance program.

Additional information about FHA mortgage insurance considerations under the moratorium can be found in Mortgagee Letter 2008-22 , available in Adobe Acrobat PDF.

FHA refinancing with bad credit is possible even though the subprime market is dead. You may even be able to get a cash out refinance. If you are an existing FHA customer, you could possibly get a FHA Streamline refinance, even if you have bad credit, because there generally isn't any credit underwriting or any need for an appraisal or termite report. A bad credit mortgage refinance is pretty much impossible with a conventional lender. But, now, especially with the moratorium on risk-based premiums, now is the time to refinance, especially if you have bad credit.



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FHA mortgage rates displayed are subject to change available loan information can provided by the mortgage lenders directly after application is submitted for further underwriting review. The FHA Mortgage Refinance Loan Company is not directly affiliated with any government agency. We provide an online marketplace for consumers searching for FHA loans and HUD resources. We are affiliated with HUD approved FHA mortgage lenders. If you would like to contact HUD directly please visit their website online.