October 6, 2020
Mortgage loan interest rates have, at the time of this writing in October 2020, been hovering at or near historic lows, though in recent days FHA mortgage loan interest rates have moved out of the two percent range and into the three percent zone.
Many watched mortgage rates dip below that three percent zone and there were plenty of home owners interested in taking advantage of those low rates to refinance their mortgages.
There are many reasons to consider refinancing including saving money over the lifetime of the loan by paying a lower interest rate and/or getting into a lower monthly mortgage payment.
If you are ready to commit to a refinance loan, you have multiple options to refinance out of a conventional loan or other non-FHA mortgage. You can also refinance an existing FHA loan using cash-out, no cash-out, and other refi options.
Refinancing An Existing FHA Mortgage
If you have an existing FHA home loan, you have the option of applying for an FHA Simple Refinance, FHA Cash-Out refinancing, and you have the option to apply for an FHA 203(k) Rehab loan to repair as well as refinance the property (see below for more information on the 203(k) mortgage).
Existing FHA loans may also be refinanced as a “streamlined” loan featuring no FHA-required credit check or appraisal. This type of refinance loan is called an FHA Streamline Refinance, also known as an Interest Rate Reduction Refinance Loan or FHA IRRRL and is only for existing FHA mortgage.
You cannot refinance a conventional, VA, or USDA home loan with this option. (VA loans have their own version of the Streamline Refinance.)
In most transactions the FHA IRRRL must result in a benefit to the applicant which can be in the form of a lower monthly mortgage payment, a lower interest rate, or refinancing into a fixed-rate mortgage out of an adjustable rate mortgage.
Refinancing Non-FHA Home Loan
It is possible to refinance a non-FHA mortgage using an FHA refinance loan. FHA refi loans can be used to refinance a fixed rate loan or an adjustable rate mortgage into an FHA loan. Do you have a conventional, adjustable-rate mortgage and want to get into a fixed-rate loan instead? Any loan you refinance using an FHA loan will feature zero penalty for early payoff of an FHA mortgage.
Refinancing out of a non-FHA mortgage into an FHA home loan requires a new appraisal and a credit check. The credit check process is the same as for new purchase home loans–prepare for a refinance loan in the same way you prepared for the original mortgage.
Do so by monitoring your credit as early as possible. You should also work on paying down your monthly financial obligations as much as you can to reduce your debt-to-income ratio. Don’t open new credit accounts in the 12 months leading up to your new loan.
Refinancing And Repairing
One important FHA refinance loan option allows the borrower to refinance their mortgage (FHA or non-FHA) and get funds to upgrade or renovate the property at the same time.
This refi loan option is called the FHA 203(k) Rehabilitation mortgage, and it’s a very specific type of loan–the borrower must use all funds from the 203(k) for expenses associated with approved improvement projects. The projects must be approved by the lender ahead of time and the borrower may or may not act as their own contractor. Much depends on the lender’s rules in this area. The FHA 203(k) Rehab Loan is not a generalized cash back type refinance so all funds must be properly acounted for.
These loans, like most other FHA refi options except for the FHA IRRRL, require both a new appraisal and a credit check. You can get ready for this type of home loan the same way you would for a purchase loan–remember that your credit reports and loan repayment history will be reviewed as part of your application process.
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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