April 1, 2021
Are you considering applying to refinance your home loan? Which refi option is the right choice? Some people seriously consider a refinance loan without knowing all the options–some kinds of refinancing are more appropriate for some needs than for others.
How to select the right loan for your needs? It’s one of the first hurdles you’ll clear when learning about refinancing. Borrower choices include cash-out refinancing, FHA Streamline refi loans, and FHA 203(k) Rehabilitation refinance loans for those who want to refinance and remodel the home at the same time.
Refinancing Non-FHA Mortgages
Generally speaking, FHA refinance loan rules permit an FHA-to-FHA refinance loan, but also options for non-FHA-to-FHA refinance loas.
The FHA refinance loan program allows you to get out of a higher interest rate conventional mortgage into a lower-rate FHA loan using cash out or a no-cash FHA refinance. Borrowers can get out of adjustable-rate mortgages by using an FHA refinance loan, too.
There is only one refinance loan offered by the FHA that does not permit you to refinance a non-FHA mortgage.
That loan is known as the FHA Streamline Refinance loan, which is for existing FHA mortgages and must provide a tangible benefit to the borrower such as a lower rate, lower payments, getting out of an adjustable-rate mortgage, etc.
Refinance Loan Problems
Compare lenders carefully–don’t assume all banks or financial institutions have identical rates and terms. They do not, and that is one of the early FHA loan problems some encounter–not comparing rates and terms with at least three FHA lenders.
Another refinance loan problem you may encounter if you are a new home owner? Minimum requirements for making payments on a home you haven’t owned very long may apply.
If you haven’t been paying on your home loan for more than six months, be sure to ask your lender about the “seasoning period” also known as the minimum payment requirements for the loan you seek.
You may be required to wait a minimum amount of time or make a minimum amount of payments
Make On-Time Payments
Borrowers should not skip payments ahead of a refi loan, and for those who have struggled to make payments in the year leading up to a refinance loan application, this can hurt your chances for loan approval if you seek cash out refinance money or want to apply for a rehab loan to refinance and renovate at the same time.
The rules are different for borrowers who are refinancing to correct previous missed payments. These borrowers will coordinate and discuss the options with a loan officer and make arrangements to refinance and catch up.
Refinancing to cure a loan default or missed payments are encouraged and the borrower in these cases will negotiate the loan with the lender to find the best solution to avoid foreclosure.
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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