March 14, 2018
Reasons to refinance your home loan with an FHA mortgage vary as much as the types of homes you can purchase with an FHA loan. Is now the right time to examine your refi loan options and start planning for your new loan? You might be ready for an FHA refinance option if one or more of the following applies to you.
Refinance Loans For Those Who Want A Lower Interest Rate
Depending on the nature of your original home loan, FHA refi loans could help you save money over the lifetime of your mortgage loan with lower interest rates. One thing that’s easy to overlook about the interest rate options available with FHA loans; what you are offered will depend at least in part on FICO scores and other credit data.
Are you ready for a lower interest rate on your home loan? Start by identifying any potential credit issues that might work against you at refinance application time and start working on them right away. The better your FICO scores are when you apply for the loan, the more competitive rates may be offered to you depending on market conditions, the lender, and your own credit activity.
What kinds of refinance loans guaranteed by the FHA are available to help you get a lower interest rate? For those with existing FHA mortgages, FHA Streamline Refinancing is available and generally requires some benefit to the borrower including lower monthly payments and/or interest rates.
Borrowers with non-FHA mortgages will need to apply for a cash-out or no-cash out refinance loan, but those refinancing out of adjustable rate mortgages and into a fixed-rate FHA mortgage may trade a higher rate for the added security of a fixed-rate loan.
In cases like these, the benefit of the fixed rate outweighs (at least for some borrowers) the possibility of a higher interest rate.
FHA Refinance Loans For Those Who Want To Repair Their Home or Add Energy-Saving Upgrades
It’s true that borrowers can apply for FHA 203(k) rehab loans in the form of a refinance on the existing mortgage, and get money to be used on approved rehab/renovation/repair work. But you do not have to apply for a 203(k) mortgage or refi loan in order to get additional funds for energy-saving upgrades.
The FHA Energy Efficient Mortgage (FHA EEM) is an add-on to FHA forward mortgages, refinance loans, etc. that provides extra money for lender-and-FHA approved upgrades including solar options, storm doors, replacement windows, and more. All upgrades must be worked out between the lender and borrower and you can apply for an FHA EEM for a new purchase loan or a refinance loan with the same exact features and options.
FHA Refinance Loans For Those Who Want Cash Back
Unlike FHA rehab loans, Energy Efficient Mortgage options, and similar transactions, FHA cash-out refinancing offers cash back to the borrower for any purpose acceptable to the lender.
Borrowers for these cash-out transactions will receive cash back after all outstanding loan obligations have been paid (or included in the mortgage depending on circumstances). The borrower and lender will work out details of the cash back option including how much will be paid back to the borrower and when.
FHA loan rules specify that cash-out refinancing loans have an LTV limit of 85%. You will need to discuss this limit with your loan officer as additional requirements may apply depending on the financial institution.
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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