May 1, 2018
Why do people refinance home loans? The answers are diverse since there is more than one reason to refinance AND more than one application for an FHA refi loan.
Refinancing To Get Lower Monthly Payments
One powerful motivation to refinance is to get a lower mortgage payment each month. Existing FHA mortgages can be refinanced into FHA Streamline Refinancing mortgages, which feature no FHA-required new credit check or appraisal.
Your lender may require a credit check and/or appraisal if lender requirements or circumstances warrant. Some Streamline Refinance loans have to include a new credit check if the borrower chooses add-ons to the loan that increase monthly payments over a certain threshold.
FHA Streamline Refinance loans must generally result in a tangible benefit to the borrower including a lower payment. Non-FHA loans don’t have the FHA Streamline option but you may refinance out of a non-FHA home loan into an FHA mortgage using FHA Cash-Out or No Cash-Out Refinancing.
FHA Refinance Loans To Change Interest Rates
Notice we don’t say “lower” interest rates in the headline above-that’s because some borrowers just want to refinance out of an adjustable rate mortgage (ARM) and into a fixed rate loan.
The fixed rate may actually be higher than the rates the borrower is currently paying on the ARM especially if it’s still in the introductory rate period.
FHA refinance loans may offer the borrower a more competitive rate depending on the borrower’s financial qualifications, the state of the housing market and lending environment at the time, and other variables. But remember that borrowers must negotiate interest rates with the lender.
The rates you are offered may vary depending on your credit qualifications and other factors. Talk to your loan officer about interest rate issues that affect your home loan whether it’s VA, FHA, conventional, USDA, etc.
Did you know you can refinance into an FHA adjustable rate mortgage? This is an option that may be available depending on the lender.
Refinancing For Cash Out
If you have enough equity built up in your home, an FHA cash-out refinance loan may be worth considering if you need to take equity out in cash. FHA cash-out refinance loans are available for FHA and non-FHA loans alike. Cash-out loans require a new credit check and a new appraisal since the refinance loan will be based on the current value of your home.
Refinancing To Change The Loan Term
Some borrowers look into refinancing their home loans because they want to get into either a 15-year loan or a 30-year mortgage. If you shorten your loan term, you will increase your monthly payments; this is by design for some borrowers who want to have the home loan paid off faster.
If you lengthen the loan term, you lower monthly payments and change the length of the commitment to the loan.
Your ability to refinance the loan specifically to change the loan term may depend on the nature of your loan, your credit scores, plus lender standards or willingness to offer certain FHA refinance loan products. You will need to discuss your goals for the loan with the lender to see what is possible.
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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