If you have an FHA loan, you have probably heard you can do an FHA streamline refinance. This FHA loan is a type of refinance where you can refi without an appraisal. It used to be very easy to do. In the past, you could refinance your loan, drop your rate, wrap in all the closing costs, and all of that could be done with no appraisal, no credit report, and for the most part no paperwork.
However, last year FHA changed the rules. Now, if you want to do an FHA Streamline refi and you want to wrap in the closing costs, you need to get an appraisal. If you want to waive the appraisal, you have to pay your closing costs out of pocket.
The problem is that people that used an FHA loan mostly put down the minimum down payment (which was 3% down, now is 3.5% down), and their house is likely worth less than it was when they bought it.
So, if you get an appraisal in this situation, the loan may be denied because the house won’t appraise for enough. And if you want to waive the appraisal because you know it won’t appraise, then you have to pay all of the refinance closing costs (to the title company, lender, appraiser, etc) out of pocket, and a lot of people do not have that cash to spare.
A lot of people with FHA loans end up being stuck unable to refinance, because of the above situation. I hope FHA changes the rules back (unlikely any time soon) so that more people with FHA loans can cheaply refinance when/if rates drop.