FHA loans are for owner-occupied properties. This is pretty common knowledge. What if we said you could use it on a non-owner occupied property? It is possible. You have to know the loopholes, though.
The basic fact is FHA loans are for owner occupied properties. The FHA designed the program to help lower income families qualify for financing. It’s stated in their rules that you cannot use FHA financing for an investment or second home. However, you can use the FHA Streamline program for these homes. You must purchase the home as your owner occupied residence. You must also live in the home for at least 1 year. This is what the FHA documents you signed at the closing state. After that 1st year, you are free to do what you want with the home.
Qualifying for the FHA Streamline
The fact is the FHA does not require verification that you occupy the property for the FHA Streamline refinance. In fact, there is a short list of items you must verify. They are as follows.
You must have made at least 6 payments on your current FHA loan in order to qualify. If it is a non-owner occupied property, though, you will have lived for more than 12 months, so this condition would be satisfied.
The payments you made over the last year on the FHA loan must have been on time. Some lenders do allow one exception. If you have one late payment and it is not more than 30-days late, it may be allowed. It cannot, however, be within the last 3 months. Each lender differs with this exception, though. Some allow it and some don’t.
Show a Benefit
You must show a benefit for the refinance. In other words, you must save money. There is one exception – if you refinance from an ARM to a fixed rate loan. You probably won’t save money with this refinance. However, the fixed rate is less risky than the ARM, so the FHA considers this a benefit. You must be careful, though. If the payment increases, it cannot increase more than 20%. If it does, the lender will require full verification of your credit, income, and the value of your home to qualify you for the loan.
No Credit Required
The best news for many borrowers is the FHA does not require you to verify your credit score. As long as you meet the above requirements, you can refinance your loan. Some lenders may still pull your credit, though. They do so for several reasons.
The most obvious is to check on your financial responsibility. They want to make sure you made your other payments on time. They also want to make sure you are not in over your head in debt. Because the lender funds the loan and the FHA doesn’t, the lender can require this additional step. Another reason a lender may pull your credit is to get an instant mortgage payment history. They can order the history from your servicer, but it may take a few days. Some lenders prefer the instant answer, plus they get to view your credit which can help in their decision.
No Appraisal required
Perhaps the best news for many borrowers is the lack of need for an appraisal. Borrowers with a home with a declining value even qualify for the program. This can help you if your area took a hard hit during the downturn of the housing history.
Lenders don’t have to worry about the value of the home because they just focus on getting repaid. If you have a timely payment history, it makes sense that you can afford the lower payment. Again, this is why many lenders choose the credit-verified version. This way they know for certain that you can afford the payments. The value of your house doesn’t matter as much. If you have money invested in the home, chances are you want to make the most of your investment rather than losing the home.
Verifying Your Employment
You may have to verify your employment for a lender. Most lenders want to know you are gainfully employed. This eliminates the worry that you are out of a job and are trying to make ends meet. Knowing that you have a job usually satisfies any lender without the need to verify credit or income. A verbal Verification of Employment simply requires your employer to tell the lender whether or not you are employed at the company. They may also ask your start date, but that is about all the lender may ask.
Determining the Need to Refinance a Non-Owner Occupied Property
The big question is whether you should refinance your non-owner occupied property. You will incur closing costs again. You will also pay the upfront mortgage insurance again. If your original FHA loan began less than 3 years ago, you may get a small refund of the original upfront MIP you paid. This helps to offset the new insurance you must pay.
The FHA bases your refund on the length of time that elapsed since your original FHA loan. Because you must make 6 payments before you qualify, your refund doesn’t start until then. At this point, you stand to receive 70% of the upfront MIP you paid back. However, since you must live in the home for at least 12 months, the refund at the 13th month mark equals 56%. It decreases slightly until the 36th month, which you receive just 10% back.
The best way to determine if you should refinance is to determine the recapture period. Total the cost of the refinance including the upfront MIP. Compare that total to the savings you will receive each month. Use the following calculation to figure it:
Closing Costs/Savings = Number of months to recapture the closing costs
If the closing costs/upfront MIP are too high, it may not be worth refinancing. However, if the recapture period is short enough, you may benefit from the savings.
The FHA Streamline Refinance is an option for a non-owner occupied property, you just have to wait. You cannot use it right at the six-month mark because that is a violation of the FHA requirements. This could land you with a hefty penalty and exclusion from any government loan products again. After the first year, though, you are eligible to use the program to save money and get ahead.