July 18, 2017
How do you refinance an FHA loan? There are some important questions to answer before getting to the actual application process-questions that can help you narrow down the right kind of FHA mortgage refinance loan for you.
Examining Your Financial Goals and Needs
FHA refinance loans come in a variety of types designed to fit different financial needs. Are you looking for a refinance loan that will lower your monthly mortgage payments? Do you need to take cash back on the refinance loan transaction?
Depending on circumstances, those two issues may or may not be mutually exclusive. FHA refinance loans do offer the ability to get into a lower payment or interest rate, but getting cash back likely involves a different kind of FHA refinance loan. Deciding what result you get from your loan is the first step. Money back, or lower payments?
Deciding On Interest Rates: Fixed Or Adjustable Rates?
And by that, we mean choosing between a fixed rate FHA refinance loan or an adjustable rate refinance loan. What’s the difference? The fixed rate refinance loan option offers stability and predictability over the lifetime of the loan. So why would anyone choose an adjustable rate? Some borrowers know they will not be staying in the home for the entire term of the loan, but intend to sell later on.
The Adjustable rate refinance loan may allow you to get a lower introductory rate, which could help you save money for that portion of the mortgage loan. If you intend to sell in the mid-term and long before the loan term ends, you likely aren’t as concerned about the change from the introductory rate to the first rate adjustment (unless of course you aren’t able to sell the property in time to avoid that first adjustment). It’s easy to see that an adjustable rate mortgage could have an appeal for some (but not all) borrowers.
Do You Need Add-Ons To The Refinance Loan?
The FHA refinance loan program allows borrowers to add some additional costs to the loan including an Energy Efficient Mortgage (FHA EEM) option. The FHA EEM permits added funds to be included in the refinance loan for the purpose of installing approved energy efficient upgrades such as storm windows, solar panels, or other improvements that can lower utility bills over the lifetime of the loan.
Such add-ons will likely increase your monthly mortgage payments, so it is very important to work with your chosen participating lender to determine how much your payments may go up, and whether the added expense is worth it, based on your financial needs.
Once you have decided on these issues, you may be ready to pick the type of FHA refinance loan that is right for you. But what are your options? We’ll examine those in another blog post.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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