Refinancing a FHA Mortgage Loan

The FHA or Federal Housing Administration created in 1934 has been part of HUD, the Department of Housing and Urban Development since 1965. Its main function is to stimulate the housing market, and has used different methods depending on the types of economic crises that existed at the time. Even though the FHA is an insurer, and does not lend money, it does directly affect mortgages by reducing the risk involved for a lender, and in helping borrowers refinance their mortgage loans.

Refinancing a FHA mortgage loan can be done in a number of ways depending on a home owner's needs, and when meeting the requirements of specific programs such as Streamline Refinance Loans and Cash-out Refinancing. In fact, due to the recent negative mortgage market, many consumers have found themselves turning to FHA programs because of the perception that it was easier to own a home than with conventional mortgages. The FHA even promotes this idea by stating that FHA loans offer better deals though "low down payments, low closing costs, and easy credit qualifying".

In March 2009, the FHA announced to lenders that it would be more difficult to obtain cash-out refinancing with FHA mortgage loans. They found that claims increased dramatically from refinanced home loans and in fact, in a large percentage of cases, borrowers did not even make it past the first payment on the new loan. Previous to the revised ruling, home owners with at least five percent equity and one year of timely payments were permitted to avail themselves of cash back. As of April 1, 2009, that changed. The equity requirement was temporarily increased to fifteen percent, the idea being that the more a borrower owns, the less likely he/she will default.

But, refinancing a FHA mortgage loan still seems to be easier than with conventional mortgages (this does not apply to the FHA's HECM reverse mortgage program). They promote the fact that they are still around after everyone has abandoned you during financial hardship, and they encourage you to review their programs to assist you and keep you from foreclosure. And of course, the lenders are happy with the programs since their loans are insured through FHA, reducing their risk and losses in time of default.

Benefits of Refinancing a FHA Mortgage Loan:

  • Credit score is not as important and often not even used.
  • Closing costs may be covered in some instances rather than needing the cash upfront.
  • Often, a reduction in the interest rate and principal owing can result in reduced monthly payments.
  • Offer a specialty loan called 203(k) to help home owners with improvements to the property. The value of the home is assessed at the future value and not the present appraisal. Basically, the home is valued at its projected worth when the renovations are completed.
  • Streamline 203(k) allows as much as $35,000 for non-structural repairs.
  • Offers both temporary and long-term alternatives for those experiencing serious hardship. Sometimes, the lender can modify the loan to increase the total period owing, or they might even forgo some interest payments.
Although the FHA seems like an easy and advantageous way to refinance, it is a good idea to shop around. You may find that in your circumstances, a conventional mortgage refinance is more agreeable. When choosing between the two options, look at the cost of each and the benefit of each.

Publié le par thebluff dans «Your Home».