November 25, 2020
Are you excited by the historic low interest rates that happened in 2020 and have your eye on a refinance loan in the new year come 2021? Do you need a lower mortgage payment? Perhaps you would like a lower interest rate on your current home loan?
Some borrowers have different needs–some feel stuck in adjustable rate mortgages and want to refinance into a fixed-rate mortgage loan instead.
These scenarios can be addressed with an FHA refinance loan and if you’re thinking about applying in 2021 its best to become as familiar as you can with the types of refinance options open to you when it’s time to refinance a non-FHA mortgage or an existing FHA home loan.
Consider An FHA Refinance Loan In 2021
The same kinds of preparations you made for your original loan application? You should take those same steps when you begin planning for your FHA refinance loan. What steps?
Pull your credit reports are early as possible in the planning stages. Subscribe to an active credit monitoring service to make sure there are no surprises when it comes time to fill out application paperwork. Start saving for your closing costs as early as possible. Don’t apply for new credit.
You’ll also want to plan for the expenses related to the specific refinance loan you need.
Loan Expenses
For example, any FHA refinancing loan that features cash back to the borrower must include a new credit check and appraisal. Both of these cost money–the borrower pays–and are considered typical expenses associated with refinance loans. Ask a loan officer how much these costs can be (you’ll likely get a rough estimate, which is fine for planning purposes) and save accordingly.
Loan Prep Issues
Don’t forget to plan on using your credit cards less, and be prepared to work to pay down existing debt to improve your debt-to-income ratio. The more income you have left over after your financial obligations are met, the better.
Refinance options for existing FHA mortgages include an FHA Streamline Refinance loan which has no FHA-required credit check and no FHA-required appraisal.
If the lender chooses to require one or both, you’ll need to discuss that with your loan officer and expect the same type of credit review as with a new purchase mortgage. Remember, the record of your payments for the 12 months leading up to the loan application is extremely important.
FHA Refinance Loan Options
FHA home loan refinancing options include cash-out refinancing which can be used to refinance FHA and non-FHA loans alike). There are also options for no cash-out refinancing (FHA and non-FHA), and FHA 203 Rehab Loans (FHA and non-FHA).
For all FHA refinance loans there is also the FHA Energy Efficient Mortgage option which allows you to add extra funds to the loan for (lender-approved) energy-efficient upgrades to the home.
Be sure to ask your loan officer about the FHA Energy Efficient Mortgage option if you want to pursue these upgrades and improvements–learn how choosing the Energy Efficient Mortgage option can affect your monthly payments and other factors.
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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