July 22, 2024
Do you need to refinance out of an adjustable-rate conventional loan? Do you want a potentially lower mortgage rate? Do you need to take equity out of your home in cash?
Refinancing from a conventional mortgage to an FHA loan can offer several advantages for borrowers with such financial needs and goals.
The advantages include the possibility of qualifying for lower interest rates than some conventional loans and getting a more predictable mortgage when refinancing out of a traditional or FHA ARM into an FHA fixed-rate loan.
You can also use an FHA cash-out refi for debt consolidation or tap into your house’s equity.
Qualifying For An FHA Refinance Loan
To be eligible for an FHA refinance loan, there are requirements similar to some purchase loans:
- Credit score: A FICO score of 580 or higher is required for the most favorable FHA loan terms, though lenders may have additional credit requirements above the FHA minimums.
- Employment: Your lender typically looks for two years minimum employment time.
- Eligible property types: FHA refinance loans are limited to owner-occupied properties and exclude investment properties. You must live in the home you refinance with an FHA loan.
Costs Associated with FHA Refinancing
When refinancing into an FHA loan, you must pay FHA loan closing costs, which can amount to up to 6% of the total loan amount. Plan and save for expenses, including the appraisal fee, lender’s fee, credit report fees, and FHA mortgage insurance premiums.
FHA Loan Refinancing Process
The process of refinancing to an FHA loan is similar to the process you experienced for the original mortgage:
- Gather financial documents. Collect essential financial documents, including two years of tax returns, pay stubs, and bank statements. Small business owners may be required to submit additional documentation.
- Submit your completed FHA refinance loan application. Remember that some participating lenders may not offer all FHA loan options. Shop around for the right lender offering the right options for you.
- Verification and approval. The lender will verify your income, review your employment history, and examine your credit reports. When your refi loan is approved, you will be offered loan terms based on the contents of your credit report.
FHA refinance loans feature no penalty for early payoff don’t allow the lender to charge you specific fees or costs for the transaction, and provide more affordable housing options to all who financially qualify regardless of past home ownership.
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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