September 24, 2018
Do you need to lower your monthly mortgage payment? There are several FHA refinance loan options to help you do that, and depending on your financial needs and goals you may find that an FHA refinance is exactly what you need to get into that lower monthly obligation.
Lower Mortgage Payments Before They Begin
Some applying for an FHA home loan have the option of not financing certain up front costs such as the FHA Up-Front Mortgage Insurance Premium. Any expense you add to the loan amount potentially increases your monthly payments.
One of the best things you can do when looking for a new home loan is to try to avoid adding more funds to the loan amount if you do not need to. For some, it’s already too late to avoid this but for those who can this strategy is worth considering.
You can help offset some of the up front costs of your FHA mortgage with seller contributions or contributions from a third party (not to exceed six percent of the sales price of the home), apply for any mortgage down payment assistance programs in your area, and with gift funds for your home loan down payment.
Lowering Mortgage Payments With An FHA Streamline Refinance Loan
FHA Streamline Refinance loans are for existing FHA mortgages and must normally result in a lower payment, lower interest rate, or other tangible benefit.
FHA Streamline loans can, if the lender approves, have no FHA-required credit check or new appraisal. There’s no cash back to the borrower possible with such loans, but the benefit to the borrower is clear.
Refinancing your existing mortgage to get into a lower payment likely means refinancing into a 30-year mortgage, since refinancing into a shorter loan term means higher monthly payments.
For some borrowers this is a deal-breaker, but for those who have a pressing need for lower payments and more available funds in cash each month, the FHA Streamline Refinance option makes sense.
Lowering Mortgage Payments By Refinancing Into An FHA ARM Loan
This strategy is a more more complex and involves a plan to sell or refinance the home again after the initial interest rate period expires. FHA adjustable rate mortgages allow the borrower to get an introductory interest rate good for a year or longer depending on the nature of the loan. That introductory rate may be lower than what the borrower is paying now.
In such cases, the borrower should do the math to determine whether an ARM loan refinance is a good idea. But using an ARM loan implies a longer-term plan to help the borrower avoid paying the higher interest rates later on; this may be too complex for some borrowers or the steps required may not feel practical for some.
That said, the ARM loan option is one to consider in cases where a lower payment in the short term is a priority and the idea of going back later to sell or refinance once more isn’t a daunting one.
ARM loans have costs, lender fees, and other expenses. You will need to do the math on these costs to see if the ARM loan option makes financial sense based on your current financial needs.
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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