What is an FHA Simple Refinance and what are the requirements?

Simple Refinance refers to a no cash-out refinance of an existing FHA-insured mortgage in which all proceeds are used to pay the existing FHA-insured mortgage lien on the subject property and costs associated with the transaction.   Simple Refinance is only permissible for owner-occupied Principal or HUD-approved Secondary Residences.  

The Mortgagee (Lender) must review the Borrower’s employment documentation or obtain utility bills to evidence the Borrower currently occupies the property as their Principal Residence.   The Mortgagee must obtain evidence that the Secondary Residence has been approved by the jurisdictional Homeownership Center (HOC). 

  • For mortgages on all properties with less than six months mortgage payment history, the Borrower must have made all payments within the month due.
  • For mortgages on all properties with greater than six months history, the Borrower must have made all mortgage payments within the month due for the six months prior to case number assignment and have no more than one 30-Day late payment for the previous six months for all mortgages.  

The Borrower must have made the payments for all Mortgages secured by the subject Property for the month prior to mortgage Disbursement. 

If the mortgage on the subject property is not reported in the Borrower’s credit report, the Mortgagee must obtain a verification of mortgage to evidence payment history for the previous 12 months. 

The maximum loan-to-value (LTV) or combined loan-to- value (CLTV), if applicable, is 97.75 percent for principal residences and 85% for HUD-approved secondary residences.  

The maximum mortgage amount for a Simple Refinance is:  

  • the lesser of:  
  • the Nationwide Mortgage Limit;  
  • the Maximum LTV ratio from above; or  
  •  the sum of existing debt and costs associated with the transaction as follows:
  • existing debt includes:    
    • unpaid principal balance of the FHA-insured first mortgage as of the month prior to mortgage Disbursement;             
    • interest due on the existing Mortgage;
    • the unpaid balance of any PACE obligation;             
    • Mortgage Insurance Premium (MIP) due on existing mortgage;
    • late charges; and
    • escrow shortages;   
  • Allowed costs include all Borrower-paid costs associated with the new mortgage; and 
  • Borrower-paid repairs required by the appraisal; 
  • less any refund of the Upfront Mortgage Insurance Premium (UFMIP).

For additional information, see Handbook 4000.1, Sections II.A.8.d.i.(B)(2)(b) and II.A.8.d.vi.(B)(1)-(2) available at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-04373