 |
Understanding the FHA Refinance Loan Process
For homeowners that have an FHA mortgage loan and those that want to refinance, either to make home repairs or benefit from equity in the home, an FHA refinance loan is possible. Just as with any other type of loan, the process for a refinance on an FHA mortgage is much the same. However, getting qualified is actually easier in that this government-backed loan has protective measures in place.
The first thing the homeowner needs to consider is the type of FHA refinance loan that would work best. One of the benefits for a refinance such as this is that options are far greater than with a traditional loan. Therefore, the homeowner should sit down with a qualified lender to discuss the list of possibilities.
Another thing the homeowner needs to know is the purpose for taking out an FHA refinance loan. For instance, some people want to take equity out of the home to send kids to college, take an expensive vacation or remodel their home. Some people want to consolidate debt while others are looking for a loan with a lower interest rate that could lower their monthly mortgage payment. Knowing the purpose of the loan would also ensure that the appropriate loan was secured.
Working with the lender of the FHA refinance loan, the amount the homeowner could afford to pay would be determined. This figure would be based on the debt versus income ratio, but also the person’s credit rating, the amount of interest rate that would be charged, and so on. Once all of the questions have been answered, the homeowner should spend some time shopping around for an FHA refinance loan to find the best program and rates.
Homeowners will find that there are a few options available to them. One is a cash out refinance. This is designed for those homeowners that have property that has increased in market value. Through this FHA refinance loan process, the homeowner is able to access their home’s equity and use it elsewhere. The result is taking out another mortgage that has a higher value than their initial loan. To get the most benefit out of this refinancing option, it is best if you purchased your home more than a year prior to refinancing, allowing you to refinance up to 85% of the appraised value of the home plus the allowable closing costs.
Another option is the streamline refinancing option. Through this FHA refinance loan process, the homeowner is actually able to decrease their monthly mortgage payment. This option is good if you have a loan in good standing and want to lower your monthly mortgage payments. If you have no substantial debt owed elsewhere, this option can allow you to save a little extra money each month to put into savings, retirement, use for daily living expenses or for entertainment.
Just as with the initial FHA loan, an FHA refinance loan would also be one backed by the federal government so qualification is much the same as what the person went through the first time. This type of loan has been around for a very long time and today, still provides great solutions for homeowners.
