Is the FHA Short Refinance Program Right for You?

We help homeowners in a wide variety of situations. Not everyone we counsel is actually behind on mortgage payments, but they may have some other issue that is causing them concern.

One situation we see is a homeowner whose home is worth less than is owed. They are fully up to date with mortgage payments, but their home has lost value.

The Federal Housing Administration (FHA) Short Refinance program was one program for people like them, who owed 15% or more on their mortgage than the home was actually worth. This plan helped homeowners refinance into a new mortgage loan that was more affordable and in line with the value of their home. The new mortgage was FHA-insured, and the amount owed set to no more than 97¾% of the home’s value.

While this program ended in 2016, it’s good to know that HUD-approved housing counselors kept current with available options to help borrowers, and continue to facilitate mortgage solutions that help homeowners avoid foreclosure. 

Current Housing Assistance Programs

While the FHA Short Refinance Program originally was set to end in 2012, it was extended to December 31, 2016. Any loan with a case number issued after that date is not eligible for an FHA short refi.

Now, FHA offers a new refinancing option called FHA Streamline Refinance. This option refinances an FHA loan into a new loan with lower payments, a fixed rate, or lower interest rates. 

FHA Short Refinance Guidelines

To get access to a short refinance under the old program, borrowers needed to meet certain requirements:

  • The mortgage was not owned by the USDA, VA, or FHA.
  • The homeowner owed more than the home was worth.
  • Was not behind on mortgage payments.
  • Borrower actually lived in the house.
  • Met FHA eligibility requirements for a new mortgage.
  • Debt to income ratio was not greater than 50%.
  • FICO score that was 500 or higher.
  • Free from certain criminal convictions in the previous 10 years.

This refinance program was voluntary, so borrowers needed to contact their mortgage servicer to find out if they participated. Our counselors helped borrowers reach out to lenders to find out if the FHA Short Refinance was a good option.

FHA Streamline Requirements

Under the current FHA Streamline Refinance program, borrowers must meet a different set of basic requirements:

  • Mortgage must be FHA insured
  • Mortgage must not be delinquent
  • The borrower must benefit from the refinance, either through a lower interest rate, new loan term, lower monthly payment, or other tangible benefits
  • Borrower must not take out cash in excess of $500 through financing
  • Only HUD-approved Nonprofit Borrowers may refinance “investment properties”

HUD has detailed guidelines for lenders offering a Streamline refinance. In some cases, the Lender may cover the closing costs by raising the interest rate. While the borrower does pay higher interest, there are no out-of-pocket costs to refinance; this is one way the refinancing process might be “streamlined” under the current program. 


FHA Short Refinance Participating Lenders

While the short refinance program from the FHA ended years ago, there are current refi options that many lenders participate in.

The FHA Streamline refinance we mentioned above is for borrowers with an FHA loan who want to get lower monthly payments and interest rates.

The process is meant to be quick and simple, with limited documentation and credit checks, to streamline the process. Home appraisals may not be needed, and sometimes income verification is waived, leading to faster approvals.

Anyone interested in the Short Refinance Program would know that the FHA streamline program can allow for refinancing a loan where the borrower owes more than the property is worth. The biggest difference is that the FHA Streamline is for FHA loans, while the Short Refinance Program was for non-government backed loans.

If you’re thinking about FHA Streamline, understand that you have to pay closing costs and mortgage insurance premiums. A HUD-approved housing counselor can go over the full requirements to help you determine if this kind of refinance is a smart move for you.

FHA Refinance after Short Sale

For current borrowers who want to get an FHA loan after a short sale, there are guidelines spelled out in HUD 4000.1, the FHA Single Family Loan program handbook. 

These guidelines define a short sale as any sale of real estate that generates fewer proceeds than the amount owed on the property, and the lender agrees to forgive any deficient balance owed.

Under the current rules, a borrower must wait 3 years to seek an FHA loan after completing a short sale, but exceptions may apply, so it’s good to seek counseling if you’ve had a short sale and are ready to re-enter homeownership with an FHA loan.

If you do apply for an FHA loan after refinancing, let us help. There will be paperwork and application requirements, including written explanations of any problems that appear on your credit report. We can help you navigate all of these requirements.

We can also go over any other options you may have to find the best solution for your situation; call us today for free, confidential help.

Current Housing Assistance Programs

Just like the FHA loan after refinancing, anyone thinking about an FHA Streamline refi could benefit from HUD-approved housing counseling.

A counselor can make sure you qualify for any current programs available and tell you what you need to do to become eligible for the best options for you. 

Also, bear in mind that the now-defunct FHA Short Refinance Program and the current FHA Streamline Refinance are Federal programs. There may be more options at the state and local level depending on where your property is located. 

A HUD-approved housing counselor can make sure you’re up to speed on any local program that might help you preserve your homeownership or transition to a new mortgage loan.

Our Pre-Purchase Coaching and Home Buyer Education will help you become a successful homeowner.Our Pre-Purchase Coaching and Home Buyer Education will help you become a successful homeowner.

About The Author

Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined in 2003 and has over two decades of experience in the industry.