A family contacted me to help them refinance out of their subprime short term ARM and to consolidate some revolving debt they had built up. Their 2/28 ARM was getting ready to adjust and their prepayment penalty was over. This was the time to proceed with restructuring their mortgage and monthly debt.
The high balances that were being carried on the credit cards had weighed down their credit producing mid-scores of 648 and 582. FHA is not credit score sensitive. FHA does heavily consider the past 12 months of the credit history…late payments will negatively impact the chances for loan approval. These clients just had too much credit debt and a nasty mortgage they needed to pay off…perfect candidates!
Here’s what’s so HOT about FHA refinances:
- Up to a 95% loan-to-value cash out with one mortgage (vs. a 1st/2nd combo).
- Even though there’s upfront mortgage insurance (unless it’s a condo), the monthly mortgage insurance is reduced compared to other 95% LTVs with mortgage insurance.
- Very competitive rates.
- Underwriting is focused on credit history vs. credit scores.
- Alternative sources of credit is allowed.
- Chapter 13 buyouts are allowed as long as payments have been made on time for the past 12 months and it is approved by the bankruptcy trustee approving the refinance.
- Fixed and ARMs products available.
- No income limits or geographic restrictions. (There are loan limits with FHA loans).
In this current market, without the FHA mortgage, my clients would have been forced to
- Refinance into another crappy subprime loan due to their credit scores and DTIs (this is just buying time).
- Keep their current mortgage and try to make the payments after the ARM adjust (almost certain failure).
- Sell their house and move their family.
With this refinance, the family will be increasing their monthly cash flow by over $400 per month (before tax benefits) and swapping revolving debt for tax preferred mortgage interest. They will also have a cash afterwords to complete a bathroom remodel and fund an "emergency savings" account.
FHA refi? Yah, that’s hot!