July 11, 2017
When is an FHA loan better than a conventional loan? If you are exploring your refinance options, you may find your FHA loan options provide you with some unexpected flexibility.
Refinancing Conventional To FHA
Yes, FHA loan rules permit those who have existing conventional, VA, or other non-FHA mortgages to refinance them into an FHA loan using cash-out refinancing or no cash-out FHA refinancing. Borrowers will need to budget for a new appraisal for these FHA refinance loan transactions, and you’ll be required to do the usual credit and employment checks.
Refinancing from a conventional loan to an FHA loan also includes flexibility where interest rates are concerned. Have you ever compared FHA fixed-rate mortgage loans with FHA adjustable rate mortgages (ARM loans)?
For some borrowers, refinancing out of an adjustable rate mortgage into a fixed rate loan is highly desirable, and with good reason. Adding predictability to your monthly mortgage payment can be very helpful.
But some borrowers come to the new purchase or refinance loan process with a strategy that involves getting into the lowest rate possible early in the loan using an FHA Adjustable Rate Mortgage, then selling or refinancing later on when the introductory rate is about to expire. An FHA Adjustable Rate Mortgage has specific rules that govern and limit the number of interest rate changes, when they may occur, and how often. Is an FHA ARM loan right for your financial strategy?
Refinancing FHA-To-FHA
Existing FHA mortgages can be refinanced using a variety of FHA loan options. There are FHA Streamline Refinancing Loans, which require a benefit to the borrower in the form of a lower rate, a lower monthly payment, refinancing into a fixed rate out of an ARM loan, etc.
The lender will explain to the borrower cases where exceptions to this requirement are possible. You may need to refinance a loan and include added funds for energy-efficient upgrades, etc. Such add-ons to the loan can and often do raise the monthly mortgage payment amount.
In such cases, the borrower must certify in writing that such add-ons will increase the cost of the loan. Your lender may need to work more closely with you in cases where an FHA Streamline Loan results in an increase of your payments by a certain amount, but many borrowers find FHA streamline refi loans to be quite helpful with or without energy efficient upgrades.
You can also refinance FHA-to-FHA and get cash back on the transaction with an FHA Cash-Out Refinance loan. Once your prior loan and any closing costs associated with the new loan are paid, the remainder of the loan can go to the borrower in cash. With FHA loans having lower interest rates than their conventional equivalents, qualified borrowers may find the FHA cash-out refinance loan option to be a better bet than conventional loans that feature similar cash-out options but at higher interest rates. You’ll need to shop around for the best rates and terms, even among participating FHA lenders.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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