During the life of your home loan you will more than likely reach the point where you decide that a refinance is necessary. Maybe you want to cash out the equity, or maybe you just want to adjust the terms so you can spend less in the end. Regardless of your reason, there are many FHA refinance options available to homeowners, especially those with credit scores below the seven hundred range. To refinance your home you may want to familiarize yourself with these common options.
Streamline Refinances and No-Cost Options
Part of the beauty of refinancing through the Federal Housing Administration is that you may be able to roll your closing costs into the loan, meaning you will not have to pay them up front at the close of the loan. Instead, you will pay them down over time along with your regular mortgage payment.
There are pros and cons to this method. Yes, you do save money on the initial investment and for many homeowners this one factor determines whether or not they can afford the refinance. However, rolling the closing costs into the loan also means that you will more than likely have a slightly higher interest rate. It won’t be much but it will affect what you end up paying for the loan over time, so it can in some cases reduce the bottom line. This loan option is available to homeowners who are switching from conventional to FHA.
A second loan option that can lower costs are streamline refinances. These little gems are ideal for homeowners who want the refinance without all of the hassle involved. They do not require an appraisal and they can be done with much less paperwork, but the end result has to be a lower mortgage payment and it should be a lower interest rate as well. These can be no-cost refinances but if you do choose that route, you will have to get an appraisal done on the property. For both of these FHA refinance options you will have to go through a federally approved lender to secure the loan. Also, these loans were created to help you reduce mortgage payments and interest rates. If they don’t offer you financial benefits than you may not be able to qualify. Of course, if the benefits aren’t in place you may not want the loan anyway. Conventional lenders offer different types of refinances with a different set of underwriting guidelines.
Cash-Out or No Cash-Out FHA Refinance Options
In addition to the streamline and no cost options, you also have the cash-out and no cash-out refinances. The cash-out is pretty self explanatory. This refinance enables the homeowner to pull some equity out of the home which he can then use for whatever he chooses. Ideally the money will be put into more investments so the investment portfolio can build. The Cash-out refinance will increase your mortgage amount and will more than likely increase your monthly payment as well. However, if the interest rates are low and your credit score is competitive you may be able to reduce the interest rate which would offset to some degree the financial impact of the higher mortgage.
The no cash-out refinance is simply a refinance that makes it possible for you to adjust the terms of the loan to better suit your financial needs. For homeowners that purchased a home only to see interest rates drop dramatically six months later, the no cash-out will come in handy. Your goal with this loan is to reduce your interest payment, reduce your bottom line, switch from and ARM to a fixed loan, and possibly even reduce the loan term, meaning you would switch it from thirty year to a twenty or fifteen year fixed. There are a lot of options available to you through this method that can really help you when it comes to paying less. You won’t be pulling out your equity but you will shave some money off the overall cost of the loan.
With any of your FHA refinance options you will have to apply through a federally approved lender. Prior to signing an agreement for any loan, it’s recommended that you do some calculations and determine your break-even point and the changes to the bottom line. You want to make sure the adjustments you make to the loan don’t increase the bottom line unless you are at risk of defaulting on the loan and need the adjusted terms to make the monthly payment.
The FHA refinance options with the No-Cost Refinance and its misconceptions.