Monday, May 20, 2013

What Will an FHA Underwriter Need for a Refinance?

What Will an FHA Underwriter Need for a Refinance?



The FHA program allows for two types of refinances, and the amount of paperwork needed by the underwriter varies depending on which type of refinance you pursue. If you want an FHA streamline refinance, then the underwriter needs very little new paperwork, but if you are not streamlining, then the FHA underwriter will need enough paperwork to create a financial portrait of you.

Types

FHA refinances can be either traditional or streamline. The FHA streamline program provides a way to refinance an existing FHA loan with very little paperwork or underwriting. Instead of relying on a new loan application, the underwriter just relies on the application submitted in connection with the original FHA loan. A traditional FHA refinance, however, requires a full loan application.

Streamline Documents

The only new document potentially needed for an FHA streamline refinance is a verification of current employment. The underwriter uses the credit reports, income statements, bank statements and all other paperwork from your original FHA loan application. And some underwriters don't even require a new verification of current employment. The underwriter simply needs to verify that the streamline refinance will result in lower monthly payments because of a reduced interest rate on the new loan.

Traditional Refinance

A traditional FHA refinance occurs when a borrower does not have an existing FHA loan but wants to refinance with a new FHA loan. In this scenario, the underwriter needs a credit report, a verification of income, bank statements for the past three months and verification that you have enough money to make a down payment.

Features

To provide an FHA refinance loan, the underwriter must verify a few critical items, including your credit score, down payment and debt-to-income rations. The underwriter will need proof that your monthly mortgage payments will be less than 29 percent of your gross monthly income. Also, the underwriter will need to review your credit score. If your credit score is above 580, then you will need to show at least 3 percent equity, and if your score is below 580, then you will need to show at least 10 percent equity in the home. If your equity is too low, you can provide a cash payment to qualify for the FHA refinance. Finally, the underwriter may, but does not always, demand a current appraisal on the home.

Mortgage History

The final documentation needed for the FHA underwriter, regardless of whether the refinance is streamlined, is a mortgage payment history on your existing mortgage loan. The underwriter will verify that you have not made more than one payment that was at least 30 days late.

About the Author


The Constitution Guru has worked as a writer and editor for "BYU Law Review" and "BYU Journal of Public Law." He is an experienced attorney with a law degree and a B.A. degree in history with an emphasis on U.S. Constitutional history, both earned at Brigham Young University.

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