What Is FHA Refinance?
FHA refinance means you replace your current mortgage with a new one insured by the Federal Housing Administration. The FHA is a U.S. government agency. It does not lend money directly. Instead, it insures loans made by private lenders. This insurance protects lenders if borrowers default. That protection lets lenders offer FHA loans with easier rules than regular mortgages.
FHA refinance can lower your monthly payment. It can also give you cash from your home equity. Some programs help you pay for home repairs. Others help disaster victims. Each program has its own rules and its own HUD section code.
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FHA Refinance Programs, HUD Codes, and 2026 Requirements
- The FHA offers many refinance programs in 2026. Each has its own HUD section code and specific rules.
- The main FHA refi programs are Section 203(b) Streamline, Section 203(b) Rate-and-Term, and Section 203(b) Cash-Out. These fit most FHA borrowers.
- Specialty programs include 203(k) for home repairs, 203(h) for disaster victims, Section 251 for adjustable rates, and Energy Efficient Mortgage (EEM). These serve specific borrower situations.
- FHA cash-out refi has been capped at 80% loan-to-value since HUD Mortgagee Letter 2019-11. This is lower than the 85% limit before September 2019.
- The Federal Reserve raised its target rate on September 16, 2026 for the first time since 2023. This changed how borrowers think about all refi options.
How to Use This Guide: This article provides a technical reference for all FHA refinance programs including HUD section codes, requirements, and specialty programs. If you want a decision-focused comparison of the 3 most common FHA refi options (Streamline, Rate-and-Term, Cash-Out) to help you choose which fits your situation, review the FHA refinance program decision guide instead.
Why FHA Refinance Matters in 2026
The mortgage market changed a lot in September 2026. The Federal Reserve raised its target rate for the first time since 2023. Rates on all types of loans went up.
About 82.8% of American homeowners have first mortgages below 6% (Redfin 2026 data). Most of these borrowers do not want to refinance and lose their low rate. But some borrowers still need refi help. This includes people with FHA loans from 2023-2024 (when rates were high), people with ARMs that are about to reset, people who need cash for repairs, and people affected by natural disasters.
FHA refinance programs help these borrowers. Each program serves a different need. Read on to learn about all the main FHA refi programs and their HUD codes.
The Main FHA Refinance Programs in 2026
Section 203(b) Streamline Refinance
The FHA Streamline Refinance is the fastest and easiest FHA refi program. It falls under HUD Section 203(b). Only borrowers who already have an FHA loan can use it.
The Streamline has simple rules. You must be current on your mortgage. You must have made at least 6 payments on your current FHA loan. Most Streamline refis do not need an appraisal. Most do not need income verification. Most do not need a credit check.
The Streamline can close in 15-30 days. This is much faster than other refi programs. Explore FHA refinance program comparison for a decision guide between Streamline and other FHA refi options.
The Streamline has strict technical requirements per HUD Handbook 4000.1. Borrowers cannot receive cash back at closing beyond $500. The refinance must result in a “net tangible benefit” to the borrower (typically a 0.5% or greater reduction in the combined rate and MIP). The property must remain the borrower’s primary residence.
There are two types of Streamline. The “credit qualifying” Streamline needs a credit check. The “non-credit qualifying” Streamline does not. Both fall under Section 203(b).
Section 203(b) Rate-and-Term Refinance (Simple Refinance)
The FHA Rate-and-Term Refinance is also called the “Simple Refinance.” It falls under HUD Section 203(b). Any borrower can use it. You do not need to already have an FHA loan.
This program has more rules than the Streamline. It needs a full appraisal. It needs income verification. It needs a credit check. It takes 30-45 days to close.
The Rate-and-Term program lets you refinance up to 97.75% loan-to-value (LTV). This means you can have as little as 2.25% equity in your home. This is helpful for borrowers with low equity.
Rate-and-Term Refinance has specific documentation requirements under HUD Handbook 4000.1. Borrowers must provide W-2s or 1099s covering the past 2 years, most recent 30 days of pay stubs, 2 months of bank statements, and federal tax returns. Cash back at closing is limited to $500. The FHA “net tangible benefit” rule applies. For borrowers wanting to analyze potential savings before applying, review the rate-and-term refinance math framework.
Section 203(b) Cash-Out Refinance
The FHA Cash-Out Refinance lets you take cash from your home equity. It falls under HUD Section 203(b). It’s for borrowers who need cash for debt payoff, home improvements, or other big expenses.
The Cash-Out is limited to 80% loan-to-value (LTV). This means you must keep at least 20% equity in your home after the refi. This 80% cap has been in place since September 2019. Before then, borrowers could go up to 85%. HUD Mortgagee Letter 2019-11 changed the rule to reduce risk.
FHA Cash-Out has strict requirements. You need at least 12 months of on-time mortgage payments. You need a minimum FICO score of 580 (most lenders want 620 or higher). You need to prove income. You need a full appraisal.
Cash-Out requires a full appraisal by a HUD-approved appraiser. The property must be free of all Minimum Property Requirement (MPR) violations under HUD Handbook 4000.1. Any required repairs must be completed before closing. Manual underwriting may be required for borrowers with FICO scores below 620 or debt-to-income ratios above 43%.
Section 203(k) Standard Rehabilitation Refinance
The FHA 203(k) Standard Refinance is a rehabilitation loan. It lets you refinance AND fund home repairs in one loan. Section 203(k) has been an FHA program since 1978.
The Standard 203(k) is for major repairs. It covers work over $35,000. It covers structural repairs, foundation work, room additions, and major renovations. You need a HUD-approved 203(k) consultant to oversee the project. That’s why some call it the “Consultant K.”
The loan amount can be up to 110% of the after-improved value of the home. This means you can borrow more than the current value. The lender bases the loan on what the home will be worth AFTER repairs.
The 203(k) Standard is more complex than other FHA refis. It takes 45-60 days to close. It requires detailed contractor bids and work write-ups. But it lets you fund major repairs at FHA rates. Explore FHA 203k loan program details for a deeper look at this program.
Section 203(k) Limited Rehabilitation Refinance
The FHA 203(k) Limited Refinance is the smaller version. It’s also called the “Streamlined K.” It covers repairs up to $35,000 total (raised in 2024 from a lower limit).
The Limited 203(k) is for minor to moderate repairs. It covers cosmetic upgrades, kitchen remodels, bathroom updates, new roofs, and appliance replacements. It does not cover major structural work.
The Limited 203(k) is easier than the Standard. You do NOT need a 203(k) consultant. You can use standard FHA underwriting. It takes 30-45 days to close.
Both 203(k) programs require the property to be your primary residence. You cannot use them for investment properties or vacation homes.
Section 203(h) Disaster Victim Refinance
The FHA 203(h) is for victims of federally declared disasters. It provides 100% financing for people who lost their homes in disasters. It can be used for purchase OR refinance.
To qualify for 203(h) refi, you must live in a Presidentially declared disaster area. The disaster must have destroyed or damaged your home. You must apply within 1 year of the disaster declaration.
The 203(h) program has more flexible credit and income rules than other FHA programs. HUD understands that disaster victims may have credit or income issues caused by the disaster itself. The program helps these borrowers recover.
The 203(h) is not well known. Many disaster victims don’t realize FHA has a special program for them. If you’re in a disaster area, ask about 203(h).
Section 251 Adjustable Rate Mortgage Refinance
The FHA Section 251 is for adjustable-rate mortgages (ARMs). Most FHA refis are fixed-rate. But Section 251 offers ARM options for borrowers who want lower starting payments.
FHA ARMs have caps on how much rates can change. There are per-adjustment caps (usually 1% per year) and lifetime caps (usually 5% over the starting rate). These caps protect borrowers from huge payment increases.
FHA ARMs are less common than fixed-rate FHA loans. They fit borrowers who plan to move or refinance again within 5-7 years. If you plan to stay in your home long-term, the fixed rate under Section 203(b) usually works better.
Section 203(b) Energy Efficient Mortgage (EEM) Refinance
The FHA Energy Efficient Mortgage (EEM) lets you add energy improvements to any FHA refi. It works with Streamline, Rate-and-Term, or Cash-Out programs.
The EEM lets you borrow extra money for energy upgrades. This includes solar panels, insulation, new windows, efficient HVAC systems, and energy-efficient appliances. The extra amount depends on the projected energy savings.
The energy improvements must be cost-effective. This means the savings on utility bills must be greater than the added loan payment. HUD requires a home energy rating to verify this.
The EEM is a good option for borrowers who want to reduce utility bills AND refinance at the same time. It combines the benefits of both.
FHA Refinancing with Bad Credit
FHA is one of the most flexible mortgage programs for borrowers with credit challenges. The minimum FICO score for FHA refi is 500 per HUD Handbook 4000.1. But most lenders require higher scores due to their own “lender overlays.”
At 500-579 FICO, borrowers need at least 10% equity for Rate-and-Term refi. At 580+ FICO, borrowers can access the full 97.75% LTV under Rate-and-Term or 80% LTV under Cash-Out.
Past bankruptcies do not disqualify borrowers from FHA refi. Chapter 7 bankruptcy discharge must be at least 2 years old. Chapter 13 bankruptcy must be at least 1 year into the repayment plan with on-time payments.
Past foreclosures require a 3-year waiting period from the foreclosure completion date. Some exceptions apply for borrowers who faced foreclosure due to specific hardships (job loss, medical emergency, disaster).
For borrowers whose credit is too low even for FHA, explore bad credit mortgage refinance programs for alternatives including hard money and non-QM options.
Understanding FHA Mortgage Insurance Premium (MIP)
All FHA loans require Mortgage Insurance Premium (MIP). This is different from Private Mortgage Insurance (PMI) on conventional loans. MIP has two parts. The first is an upfront premium of 1.75% of the loan amount. Borrowers can roll this into the loan or pay at closing.
The second is an annual premium paid monthly. The rate depends on the loan term and loan-to-value ratio. For most FHA loans in 2026, the annual MIP is 0.55% for loans over 15 years with LTV above 90%. HUD Mortgagee Letter 2023-05 set the current MIP rates.
MIP typically stays on FHA loans for the full loan term. Conventional loans can drop PMI at 78% LTV. This is one key difference between FHA and conventional financing.
For decision-focused comparison of the 3 core FHA refi programs, review the FHA refinance program comparison guide which walks through when each program fits best.
Sources: HUD Handbook 4000.1 (FHA Single Family Housing Policy Handbook); HUD Mortgagee Letter 2019-11 (FHA Cash-Out LTV change); Federal Reserve (September 16, 2026 FOMC decision); Redfin (2026 lock-in effect estimate).
- BD Nationwide is not a lender; we connection borrowers and NMLS licensed FHA mortgage professionals offering loan estimates.