Many homeowners financed their home purchases with FHA loans. This is a great mortgage loan program backed by the Federal Housing Administration, designed to help more people achieve the dream of homeownership. FHA mortgage loans offer competitive interest rates and lower down payment options.
If you purchased your home with an FHA loan in the past, you may be able to qualify for an FHA mortgage refinance. You can refinance your FHA loan at today’s historically low interest rates. This could enable you to lower your monthly mortgage payments and/or shorten the remaining length of your loan. You may even qualify for a cash-out refinance of your FHA home loan, which allows you to take out cash that you can use for home improvements or paying down higher-interest debts.
Here Are 6 Things You Need To Know About Fha Mortgage Refinance Loans:
- You Can Qualify for a Lower Mortgage Rate
Today’s interest rates are at historic lows, but we don’t know how long it will last. Now is a great time for any homeowner to refinance if the available rate is lower than what they are currently paying. In addition, there’s a good likelihood that you are in a better financial state than you were when you first bought your home. Your income may have gone up. Other debts may have come down. Plus, your home equity can provide excellent leverage for an FHA refinance. These factors can all help you qualify for a significantly lower mortgage rate.
Even if your financial situation has taken a hit because of the crazy pandemic economy, you may still qualify for a lower interest rate. An FHA mortgage finance could be an ideal solution to lower your monthly payments and make your home more affordable. Your home equity may also give you the opportunity to cash out some money that could come in handy.
- The Process is Simple
Refinancing a home loan is generally a faster and simpler process than getting a new home loan. The mortgage lender will need to review your current financial situation and the loan will be properly underwritten before FHA approval. However, things usually progress pretty quickly if all your information is in order and your financial situation is healthy. Any equity you’ve gained during the time you’ve owned your property will provide you additional leverage when applying for an FHA mortgage refinance.
- FHA Advantages
With an FHA mortgage refinance, you’ll be able to keep the positive advantages of your FHA loan. The interest rates will be competitive. You may also be able to eliminate any mortgage insurance (PMI) premiums you are paying if you put less than 20% down for your original FHA loan. FHA loans only require a minimum 3.5% down payment and borrowers will be required to make PMI payments until they reach that 20% threshold. An FHA mortgage refinance may work out in your favor to reduce or eliminate those mortgage insurance payments.
- Lower Payments and/or Pay Off Your Loan Sooner
An FHA mortgage refinance should allow you to lower your monthly mortgage payments because of the lower interest rate. However, it’s important to understand that a refinance means you are essentially starting over with a new loan. If you refinance with a new 30-year fixed-rate mortgage, then you are starting a new 30-year term. Your monthly payments should go down, but you are extending the home loan. This may not be a big deal if you are only a few years into your original loan. It may not be worth the trade-off if you are deeper into your first loan.
Another option you may consider is shortening the length of your FHA mortgage loan when you refinance. Rather than restarting with a new 30-year loan, you can go with a 10- or 15-year fixed-rate loan that will offer much lower mortgage rates than a 30-year loan. You will be able to pay off your home much sooner. The lower rates may still allow you to reduce your monthly payments, keep them close to the same or increase them slightly. Paying a little more each month may be worth it if the refinance allows you to pay off the mortgage in half the time!
- Cash-Out FHA Refinance Options
Many homeowners have built up a significant amount of equity in their homes. This offers great leverage when applying for an FHA mortgage refinance, and you may be able to take out some of your equity. This money can be used for home improvement projects that will further increase property value. Or, it can be utilized to pay down high-interest debts like credit cards and car loans. Maybe you need the money for unexpected home repairs or medical expenses.
How you use the cash is up to you. Just remember that you shouldn’t take cash out when refinancing if you don’t really need the money. A cash-out refinance will add more principal to your loan. If you aren’t using the cash for something worthwhile, it’s best to leave the equity in your home and keep your mortgage payments as low as possible.
- Work with an FHA-Approved Lender
Not all lenders and mortgage brokers are certified to offer FHA loans or FHA mortgage refinance programs. Make sure you work with an FHA approved lender like Moreira Team | MortgageRight. Contact us today to discuss your FHA mortgage refinancing options and to see if a new loan at today’s low mortgage rates is right for you.