FHA Refinancing Advantages

by Peter G. Miller
August 26th, 2009

If you’re one of the millions of people with an FHA loan then you may be wondering about refinancing, and especially about the question of refinancing with something other than an FHA mortgage.

I’m one of those people who alway thought the hardest part of college was getting in. I also think that in many cases the toughest part of getting a job is finding one. Once you’re in college or once you have a job, you’re in.

It’s the same with FHA loans. Once you’ve got one you’re in the club.


Let’s say you have an FHA loan from a few years ago and wish to consider a new loan to take advantage of today’s lower rates. You might go from, say, 7 percent to 5.5 percent. On a $200,000 mortgage your monthly payment would go from $1,330.60 for principal and interest to $1,135.58. That’s an extra $195 a month or $2,340 a year. If such savings are unimportant to you, then please send your check to…..

If you go into the private sector to refinance the first thing you need is lots of paperwork. You have to document your income and you have to get an appraisal. The paperwork to prove income and such is no big deal if you’ve been paying taxes, but what about that appraisal. The latest report from the National Association of Realtors shows that “the median existing single-family home price was $178,300 in July, which is 14.6 percent below a year ago.”

You see the problem. Lenders like borrowers to have equity. If homes are worth less than a year ago then it become tough to refinance unless your current loan balance is substantially below the current value of your home.

FHA Refinancing

With the FHA refinancing is a very different process. Remember, if you have an FHA loan then the FHA knows if your monthly payments have been naughty or nice. If your payments have been good then the government has some good news for you.

The four basic standards to refinance an FHA loan, according to HUD, look like this:

___ The mortgage to be refinanced must already be FHA-insured. If you have an FHA mortgage you’ve got this one.

___ The mortgage to be refinanced should be current (not delinquent). That’s the good payment thing.

___ The refinance is to result in a lowering of the borrower’s monthly principal and interest payments. In our example you would save more $2,300 a year, though your mileage may differ.

___ No cash may be taken out on mortgages refinanced using the streamline refinance process. No problem. If you can save almost $200 a month, as per our example, that will be fine.

“Streamline refinances can also be done without appraisals,” says HUD, “but the new loan amount cannot exceed the original loan amount. Investment properties (properties in which the borrower does not reside in as his or her principal residence) may only be refinanced without an appraisal.”

Given today’s market, if you have an FHA loan in hand then refinancing with something else seems unlikely. For specifics and particulars, speak with FHA lenders. After all, you’re already in the club.

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