FHA mortgages are backed by the Federal Housing Administration. With this program, homeowners have access to lower down payments and easier qualifying criteria. When interest rates drop, existing FHA borrowers may be interested in refinancing. Securing a lower interest rate can reduce monthly payments. Understanding options for refinancing an FHA mortgage can assist in securing the best loan product.
Decide which loan product is right. Borrowers have two options when refinancing an FHA mortgage. The borrower can refinance into another FHA loan or refinance into a convention loan. FHA refinances have less stringent credit requirements (credit score can be lower). However, with an FHA refinance, you can’t take cash out of the home (if you have equity). A conventional loan product will allow borrowers to take cash out.
Shop mortgage rates. Once you’ve identified the right loan product, shop for the best rate. Bank Rate (see Resources) is an online comparison tools that allows visitors to view loan rates across the country. Make a note of the lenders who offer the best rate.
Complete a loan application. If you’re refinancing into another FHA loan, contact your existing lender. Request a “streamlined FHA loan.” With this loan, less paperwork is required, which means the loan funds sooner. Traditional paperwork, such as recent pay stubs, bank statements and other supporting documentation, will be required for a conventional loan.
Request a list of closing costs. Refinancing with your existing lender may provide some perks. FHA lenders may offer no cost refinances, according to the U.S. Department of Housing and Urban Development. If you’re refinancing with a new lender, negotiate closing costs. Items such as application fees and attorney fees may be negotiable.
Review closing documents. The lender will contact you once the loan has been approved and is ready to fund. Review closing documents carefully. Ensure the interest rate, monthly payments and total loan amount is correct.
Don’t be surprised if an appraisal is required. Financial institutions want to ensure the market value of the property will secure the loan. An appraisal costs about $400, depending on local appraiser fees.
Applicants applying for an FHA refinance can’t be delinquent on loan payments, according to the U.S. Department of Housing and Urban Development.