February 15, 2018
Should I refinance my home with an FHA mortgage? There are several reasons why it’s good to consider your FHA options when it’s time to start planning a refi loan.
I Want To Refinance To Get A Lower Interest Rate
If you pay attention to online mortgage loan interest rate reports, you’ll see that in general FHA mortgage loan rates are lower than their conventional counterparts.
The interest rate issue can be hard for some to understand because they see these rates compared side-by-side and assume those numbers are at or near what they will be offered if they applied at that moment.
But interest rates are negotiated between the borrower and lender for FHA refinance loans, and a borrower’s credit plays a large part in determining what interest rates are available. If you have outstanding FICO scores and loan repayment history, your chances at a more competitive interest rate are better.
If you come to the refinance loan transaction with lower FICO scores, the lender may not be able to offer the very lowest interest rates. Some choose to work on improving their credit scores first, which can be a very good idea. The FHA features referrals to local, HUD-approved housing counselors who can help borrowers understand what is expected creditwise from a participating FHA lender.
All that said, borrowers with good credit may compare their FHA refi loan options with non-FHA choices and find that the overall rates and terms may be more flexible than some non-FHA mortgages and that can definitely be an advantage.
I Want To Refinance To Repair My Home
The FHA 203(k) Rehab Loan program is basically a”fixer-upper” loan that allows the borrower to do a wide range of renovations, repairs, upgrades, etc. FHA rehab loans are available as “forward mortgages” that let the borrower buy and rehab the home.
But they are also available as refinance loans. Home owners who are interested in the repair work but who already have a mortgage are not excluded from this refinance loan opportunity.
The rules for rehab loans include the requirement of an escrow account to pay for materials, labor, etc. Borrowers are permitted to do their own rehab work, but they cannot be compensated for labor they have done themselves. Paying contractors for the labor is permitted, paying yourself for the labor from loan proceeds is not.
There are other FHA refinance loan options such as cash-out refinancing, no cash-out refi, and Streamline refinancing for those with existing FHA mortgages. We will cover those refinance loans in another blog post.
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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