As a homeowner with a Federal Housing Administration mortgage, you benefited from a low down payment and flexible qualifying standards when you got the loan. In exchange, you pay a monthly mortgage insurance fee that protects your lender against default. Once you have built enough equity in your home, you can get a loan without government mortgage insurance, known as conventional financing. No longer using the property as your primary home is another reason to switch to conventional financing, since the FHA only backs loans on principal residences. Converting an FHA loan to a conventional mortgage requires you to refinance.
Ask your current FHA lender if it offers conventional loans. Sticking with the same mortgage company can help you save money on the refinance closing costs and time on the loan-qualifying process. Some lenders offer a streamline refinance, which requires minimal credit and property evaluation, if you have a history of paying your FHA loan on time. Call your loan servicing company's customer-service number shown on your monthly mortgage statement to inquire about a conventional refinance.
Compare loan quotes from various mortgage providers, including your current lender, your local bank or credit union and a mortgage broker. Mortgage brokers can access conventional loan programs through wholesale mortgage lenders unavailable to the general public and they can give you loan options from several different sources. You can also compare quotes with online lenders, using their company loan comparison tools.
Meet all loan processing requirements in a timely manner. This entails providing income and asset information in the form of tax returns, recent pay stubs and bank statements. Your lender may require a home appraisal, which requires an appraiser to visit your home and evaluate its characteristics for the lender. It also compares the home's value to that of similar homes sold in the area. The lender bases the maximum loan amount it can lend on the appraised value. For example, if your home appraises at $200,000, a conventional lender will offer you the best interest rate and terms if you finance no more than 80 percent of the value, or $160,000.
The lender typically charges you for the appraisal up front, that is, before it agrees to give you the loan. The appraisal results can make or break a deal. You can get an idea of your home's fair market value before initiating the refinance by using an online valuation tool. (See Resource 2)
Mortgage brokers typically charge an additional fee for their services. You must weigh the benefits of a loan offer, such as a low interest rate and the time they can save you in searching, with this added closing cost.
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