Can You Refinance If You Have A Delinquent Mortgage
January 1, 2017 By Justin
The answer is, it depends. Conventional mortgage wisdom tells you that you cant refinance a delinquent mortgage under existing standards. But there are exceptions and some leeway afforded to delinquent homeowners. The challenge is to find a lender who is willing to work with you under its own rules.
How Long Does It Take To Refinance A House
Understanding the refinance process, the average timeline and what to expect as you close can make everything about your refinance a little easier.
Well introduce you to the basics behind most refinances and give you a few tips you can use to close on your refinance faster. Well also help you decide whether youve hit on the right time to refinance your home.
Jumbo Loan Refinance Rules
A jumbo loan is a mortgage that is greater than the lending limits set by Fannie Mae and Freddie Mac. In 2021, the maximum loan amount for a single-family home is $548,250 for most areas and up to $822,375 for high-cost-of-living areas.
Jumbo loan refinancing has similar refinance rules as conventional mortgages. Theres no set amount of time you must wait before you can refinance. Because they arent backed by Fannie Mae or Freddie Mac, these loans are subject to each lenders requirements and may have stricter underwriting requirements than conventional mortgages.
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How Soon Can You Refinance A Mortgage Know The Waiting Periods
Mortgage Q&A: How soon can I refinance my mortgage?
With mortgage rates marching toward new all-time lows again, a lot of recent home buyers are probably asking this question, even those who just closed on their mortgage weeks ago.
After all, if your mortgage interest rate is a half-point or more above todays new low levels, you might be leaving a considerable amount of money on the table.
And because you havent yet made a dent in your mortgage, theres no fear of resetting the clock and starting all over.
There are of course closing costs to think about, including those you may have paid on your previous mortgage such as discount points, along with third-party costs like title insurance and appraisal fees, and so on.
But it could be a smart move to grab a new mortgage while rates are low, even if yours is still in its infancy.
The Benefits Of Simple Refinancing
FHA Simple Refinance is a straight-forward process. You can add closing costs and prepaid costs into the loan, as long as it doesn’t make the loan more than 97.75% of the home’s value based on a current appraisal. This makes the option good for people who don’t want to pay closing costs out of pocket.
You can also remove co-borrowers from the original mortgage if they are no longer needed, or if personal circumstances make it best to remove them.
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Fha Streamline Credit Score Requirements
The minimum credit score requirements for an FHA streamline refinance is 500. This is the same as what you would find if you were purchasing the home.;Not all lenders want to originate loans for individuals with scores that low and you do have lower credit scores, you may have difficulty refinancing. The lenders in our network all allow for credit scores down to 500.
How Long You Want To Stay In Your Home
Remember, you must pay closing costs when you refinance just like you did when you bought your home. Though the specific closing costs youll pay depend on where you live, you can expect the total expense to equal 2% 3% of your total loan.
Only want to stay in your home for a few more years? You might lose money when you refinance. Do the math and see if refinancing makes financial sense for your situation.
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No Restrictions On Rental Payments
The FHA does not levy any specific restrictions or requirements for how to rent the home after one year. For example, the FHA does not require that the rent you charge equal or exceed the mortgage payment, so theoretically you could rent the house for a loss each month if you wanted to. But you still must make monthly FHA mortgage payments. You don’t have any defense by claiming the renter is late on rent payments.
Your Finances Are On Hand
Once youve crunched the numbers and confirmed your eligibility, it’s time to get down to the business of refinancing your mortgage. Its important to note that your lender will require you to offer up financial details and account information.
Your credit report lays out how much money you owe but your lender needs this information from you as well. Youll need to provide account statements for your mortgage, any home equity lines of credit, car loans and student loans you may have.
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Does A Streamline Fha Refi Make More Sense
If you cant meet the requirements for a conventional loan but still want to refinance, an alternative option is to apply for an FHA Streamline Refinance. This program allows FHA homeowners trapped in a high-interest ARM or fixed-rate mortgage to refinance quickly and easily to take advantage of a lower rate without the complications of in-depth documentation, credit, or income verification.
If the value of your property has decreased, interest rates on an ARM keep going up, or your income has been reduced, you could be at risk for default. The Streamline program was designed specifically to help reduce loan defaults. If you want to apply for a Streamline FHA refi, you must:
- Already have an FHA-backed mortgage
- Not have any missing or late mortgage payments
- Have at least 210 days or six months of consecutive on-time payments
You wont be able to get a cash-out with an FHA Streamline refinance. Youll also have to continue paying PMI, but any UFPMI will be absorbed into your new mortgage instead of being due up-front at closing.
For a FHA Streamline refi, youll also need to demonstrate a Net Tangible Benefit, which is your valid reason for refinancing. The benefit can be any of the following:
- A switch from an ARM to a fixed-rate mortgage
- A 5% reduction in your payment principal and interest plus MIP
Waiting Period For Other Kinds Of Loans After Foreclosure
For most other types of loans, like subprime loans, the waiting periods can vary. Most aren’t as lenient as FHA and VA lenders. The waiting period can range from two to eight years or longer. Other lenders might shorten the post-foreclosure waiting period, provided that you make a larger down paymentsometimes 25% or moreand agree to a higher interest rate.
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Under The Best Of Circumstances Youre Unlikely To Qualify For Reasonable Home Loan Financing For At Least Two Years After A Foreclosure
Updated by Amy Loftsgordon, Attorney
Many people who have gone through foreclosure wonder if they’ll ever be able to buy a house again. may report foreclosures in your credit reports for seven years, longer if you’re seeking a loan for $150,000 or more. But sometimes, it might take less than seven years to get a new mortgage after a foreclosure. The amount of time you have to wait before applying for a new mortgage loan depends on the type of lender and your financial circumstances.
The chart below shows how long the waiting period is after a foreclosure for different kinds of loans, with more details below.
|Other Kinds of Loans||2-8 years|
Also, a foreclosure will cause a significant , making it more difficult to get a new mortgage. The amount of that decline depends on the strength of your credit before losing your home. If you previously had excellent credit, your score will go down more than if you’d already had late payments, charged-off accounts, or other negatives items in your credit reports.
Average Closing Time For A Conventional Loan
It takes approximately 47 days to close on a conventional mortgage loan in accordance with Fannie Mae’s qualified lending standards. Conventional refinances are faster and take around 35 days to close on average.
Conventional mortgage loans follow the most traditional path from application through closing and funding. Unlike FHA and VA loans, there typically arent specialized underwriting, appraisal or approval requirements over and above Fannie Mae or Freddie Mac guidelines. Generally speaking, refinances will take significantly less time to close than new purchase loans.
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How Soon Can You Refinance A Usda Loan
If you have a USDA loan thats backed by the federal government, youll have to wait 12 months before you can refinance.
But, more rarely, the USDA offers direct loans. That means its lending you its own money rather than just guaranteeing a private lenders loan. If you have one of those, there are no formal rules governing seasoning periods for refinances.
I Was Told I Cant Refinance My Usda Loan
Maybe you contacted a lender advertising low rates, only to be told you cant refinance your USDA loan.
There are a number of reasons this might happen.
For one, the lender simply might not offer USDA home loans. Not all lenders do, so youll have to shop around for one that does.
The good news is that you wont have to look far. Many banks, credit unions, mortgage companies, and online lenders are approved to originate these loans nationwide.
For starters, you can check out the USDAs list of approved lenders by state.;
If you meet the requirements for a USDA refinance but a lender denies you, try again with a different company.
You might also run into issues if you dont meet the basic requirements of your chosen refinance program.;
For example, a lender might deny your Streamlined Refinance if your mortgage is less than 12 months old or you havent made payments on time.
Or, maybe youre trying to refinance a USDA loan to a conventional loan without enough equity.;
Speak with the lender to figure out the exact problem. If youre unable to refinance at this time, you might be eligible in the next 6 to 12 months.
If you meet the requirements listed above but a lender still denies your refinance, try again with a different lender.
Mortgage companies can set their own lending requirements, so theres a chance you find one willing to refinance your mortgage even though the first lender you spoke with wouldnt.
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Talk To A Bankruptcy Lawyer
Need professional help? Start here.
How Soon Can You Refinance A Home After Purchase
The answer may be sooner than you think, although it depends on the refinance program youre looking for, the loan type, and if any penalties apply. It may seem foolish to refinance soon after you went through the process and paid closing costs on your original mortgage, but in some cases, it could save you big money over the life of the loan.;
Although you can technically refinance immediately, some lenders may require you to wait months before refinancing with the same company. If taking advantage of better terms is your main consideration, the path may be clearer. Here are some mortgage refinance rules and time frames to consider:
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Fha Streamline Refinance Program
FHA streamline refinancing can be a great option for homeowners with existing FHA loans. Freedom Mortgage is the #1 FHA lender in the U.S..
Feb 24, 2021 An FHA Streamline Refinance loan is available only to homeowners with a current FHA home loan. You must have a clear title to the property to be;
While FHA loans have their benefits, they can end up costing a homeowner more over the long run. Learn more about the difference between an FHA loan and a;
Fha Streamline Refinance Requirements
These are the basic requirements of an FHA streamline refinance:
1. Your Current Mortgage Must Be an FHA Insured LoanOnly existing FHA mortgages can be refinanced with an FHA streamline refinance loan. If you have a mortgage that is not an FHA loan, then you can refinance to an FHA loan, but it cannot be an FHA streamline refinance. You would need to go through the full FHA application process with all of the required documentation and appraisal.
2. There Must Be a Net Tangible BenefitThe FHA guidelines define the net tangible benefit as a reduction in the interest rate, a reduction in the mortgage payment, or a positive change in the terms. If there is no significant savings for the borrower, then there is a chance the loan will not be approved.; You may also increase the term from a 15yr loan to a 30yr loan if it helps to reduce your monthly payments. Changing from an adjustable rate to a fixed rate is also considered to be a benefit even if the payment increases.
3. The Existing FHA Loan Must Be CurrentThe existing FHA loan cannot have any late mortgage payments over the past three months. You may have one 30-day late payment over the past 12 months but your loan must not be past due at the time you are applying for a streamline refinance. You cannot refinance your FHA loan until you have made a minimum of 6 payments and 210 days have passed since the day of your closing.
These are some of the great benefits of an FHA streamline refinance:
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Can You Get A Low Rate
Getting a low rate on a conventional loan means you have great credit, a low debt ratio, and a low LTV. Any factor that isnt perfect will raise your interest rate slightly. We encourage you to compare this rate to what you could get on an FHA loan. If you decide to stick with the FHA program, you have a simplified refinance option. Its called the Streamline Refinance program. You can refinance with very little verification required. Heres the difference:
- FHA Streamline loan You only need to verify that you have an FHA loan and paid it on time for the last 12 months.
- Conventional loan You must supply your income and asset documents. The lender must pull your credit. You must also pay for a new appraisal.
If you cant secure the best rates available on conforming loans, it may make more sense to stick with the FHA program.
How To Get Approval From Your Bankruptcy Trustee
Its best if you choose a loan amount that wont increase your housing expense by too much. Too much is generally defined as $100 or 5%, whichever is less.
Next, you or your attorney will file a motion with your bankruptcy court requesting approval to buy a home with an FHA mortgage.; Note that it can take up to 45 days to even schedule the hearing for your motion. So dont go house shopping before youve nailed down your approval from the court as well as your lender.;
Your motion should include this information:
- The terms of the proposed home purchase including the purchase price, down payment amount, down payment source, and the monthly payment including principal, interest, property taxes, and homeowners insurance
- Proof of your current income
- Your budget including the new house payment
- How it will impact your creditors;
Normally, if the new mortgage wont result in less money available to your creditors, the trustee will approve the request to finance a home with an FHA mortgage. ; Your chances are decent if your new house payment wont exceed your current housing expense by much or at all.
If your new mortgage payment would be $1,000 more than your current rent, however, youll have a hard time. In that case, you may be able to get trustee approval by finding extra income perhaps a part-time job or by renting out part of your home to a roommate.;
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Your Circumstances Have Changed
Perhaps youd been through a financially difficult period when you got your current mortgage. Maybe your credit score was only fair and you had high borrowings and small savings. You could only get approved for a less desirable type of mortgage with a higher interest rate.
But now your credit score is looking much better, youve paid down some debt and your savings are worthwhile. So if your existing mortgage is penalizing you for who you were, rather than rewarding you for who you are now, it might be time to refinance. A lender will review your circumstances with fresh eyes and potentially offer you a lower interest rate that can help you save money.