November 14, 2016
Buying a home is sometimes only the first step in a larger financial journey-if you purchase a home with a conventional, VA, FHA or other type of mortgage loan, you might not be thinking about refinancing. But it’s an option that can be helpful in a variety of ways, especially if you understand how FHA refinance loans work. Choosing the right refinance loan is an important part of the process.
Existing FHA mortgages have a refinance option that allows the borrower to get into a lower interest rate/monthly payment. This option is called the FHA Streamline Refinance mortgage and has no FHA-required appraisal or credit check.
Depending on lender standards you may need one or both regardless, but the lender is free under FHA loan rules NOT to require them. Streamline refinancing options are only for existing FHA mortgages. Streamline refinance loans, like all refinancing, have closing costs the borrower should budget for in the planning process.
Borrowers who have existing FHA mortgages have both cash-out refinance options AND no-cash out refinance loans. FHA options also include reverse mortgages for qualified borrowers.
Cash out refinance loans are for both non-FHA and existing FHA mortgages. You can apply for a no-cash out version of this type of refinancing, too. Typically a new credit check and appraisal is required.
The appraisal process is intended to establish the fair market value of the home, an “update” of the data from the original appraisal. No FHA appraisal should be considered as a stamp of approval from the FHA, but when it comes to refinance loans the borrower should be well aware of the condition of the property and how it could affect the value.
Which leads to an important aspect of FHA refinance loans-the option to include an FHA Energy Efficient Mortgage package into the loan. This allows additional funds for approved upgrades to the home that can save the borrower money on utility bills. Depending on the arrangement you make with the lender, it may be possible to install these upgrades yourself, or hire someone to do the work for you.
This add-on to the FHA refinance loan is available for cash-out, no cash out, and FHA Streamline loans. Adding to the loan can increase your monthly mortgage payments, so you will need to work with your loan officer to determine how much the monthly obligation might increase and how much that will add to the overall cost of the loan.
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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