Refinancing home loans can be an incredible option for homeowners looking to reduce their monthly expenses or even to get upfront cash to spend on things like home renovations. However, refinancing can be a long, complicated process, which is why it is beneficial having an expert on your side.
Oftentimes, Colorado homeowners find themselves considering refinancing their FHA Loan to save money. This can look like refinancing the current FHA loan into a conventional loan, or refinancing into another FHA loan. However, being a mortgage broker in Colorado Springs, the Reichert Mortgage Team helps Colorado Springs homeowners see if refinancing is right for them. In this Quick Guide to Refinancing FHA Loans, we will cover FHA refinancing requirements, the pros, and cons of refinancing FHA loans, and FHA refinancing options.
Can You Refinance your FHA Loan?
When looking to refinance your FHA loan, there are a few aspects you should consider. Your credit score, the costs of refinancing, and interest rates will all play into the type of loan you should acquire.
- Your Credit Score – Always check your credit score before applying for a refinance. This information is crucial in determining the amount you can borrow and the interest rate you may be eligible for. While every lender and loan type is different, it is generally advised that you have a score of around 620 or higher when applying to refinance your home loan. At The Reichert Mortgage Team, we offer free credit counseling if you need professional guidance as well.
- The Costs of Refinancing – Appraisal, attorney, title, origination, and closing fees can cost anywhere from $1,500 to $5,000 on average. It’s important to make sure you are getting a better loan agreement to replace your previous one.
- Interest Rates – Low-interest rates mean more money in the short term, but in the long term, it means you are paying more over the life of the loan. High-interest rates usually mean the opposite. It’s important to consider your current income and long term financial goals before refinancing.
Pros of Refinancing FHA Loans:
- Homeowners are able to eliminate PMI (Private Mortgage Insurance) allowing them to save on mortgage insurance premiums each month.
- Homeowners can pay off the mortgage sooner
- The capability of getting a larger loan, lowering interest rates, or lowering monthly payments
Cons of Refinancing FHA Loans:
- Stricter requirements
- Homeowners will need to provide several documents to prove they are worthy borrowers
- There may be an appraisal fee
FHA Refinancing Options
If you would like to refinance an FHA loan, you have a few different options. Taking a look at the specifics will help you determine which one is best for you.
FHA Streamline Refinance
An FHA Streamline Refinance is known for its speed and ease compared to other refinance options. A Streamline Refinance allows you to lower your rate while limiting the amount of necessary paperwork, and oftentimes, can be done without an appraisal, saving time and money. If this sounds like an option you may be interested in, be sure you meet the following eligibility requirements:
- Your current mortgage is already FHA-insured
- You have a current mortgage (no payments have been missed)
- There is a net tangible benefit (an advantage for the borrower)
FHA Cash-Out Refinance
A Cash-Out Refinance is the process of taking out a larger loan than what you already have. This allows you to not only repay your old loan, potentially improve your terms and rates, but also have additional cash to use as you please. Similar to the FHA Streamline Refinance, the FHA Cash-Out Refinance has a few guidelines including:
- Credit Score
- Debt-to-Income Ratio
- Maximum Loan to Value
- Payment History Requirements
FHA Rate-And-Term Refinance
A Rate-and-Term Refinance is the process of replacing your current mortgage with a new one, that will generally have a lower interest rate and a different term length. Once you refinance to this new loan, your old mortgage is essentially non-existent, except for the fact that the remaining balance will carry over into your new loan. This is a simple option for homeowners that are looking to adjust their payments while not transferring to a completely new loan.
FHA Simple Refinance
The FHA Simple Refinance allows homeowners to transfer from their current FHA loan to a new one. Although a straightforward process, there are still a couple of specifics you should keep in mind:
- A credit qualification is required
- You will need to get a home appraisal
- Your closing costs and prepaid items may be included in the loan amount depending on the appraised value
Should You Refinance Your FHA Loan? | The Reichert Mortgage Team
The Reichert Mortgage Team knows it can be difficult to navigate all of the different loans, especially when your situation is unique. As an experienced mortgage broker in Colorado Springs, we can guide you through these choices and ensure you are informed about all of your options. If you want to refinance, we are here to help so you can get a loan that is perfect for you.