When you refinance your home you are more or less creating a new loan on a property you
already own. Because it is essentially a new loan, you are able to switch from a conventional
loan to a federally insured loan, or vice versa. Or you can choose to stay with the type of loan
you have now. The point trying to be made here is that both types of lenders – conventional and
federal- want your business. They benefit from having you as a homeowner, so they offer you the
option to refinance hoping that you will let them loan you the money you want. Both
conventional and FHA refinances have different advantages for the homeowner, so before you
adjust your loan you’ll want to consider what they have to offer.
What you Can Do with an FHA Refinance
The federal loans are there for people whose finances are not in an ideal place to qualify for a
home loan through a conventional lender. You can get an FHA refinance whether you have a
current federal loan or not. In fact, it’s not uncommon for people with conventional loans to redo
their loan through a federally approved lender.
When you switch from conventional to federal you have a couple of options available to you.
First, the cash out option. It is possible to secure a federally insured loan while cashing out the
equity you have in your home from your conventional mortgage. You can also do the no cash out
option, which is a good way to reduce the mortgage payment and/or the interest rate, making
your mortgage easier to handle. A third option is HARP, which is a federal program designed for
people who are underwater on their mortgages. If you are underwater on the loan than you owe
more on the house than it is actually worth. With HARP your lender will forgive a certain
percentage of the loan, balancing what you owe with what the home is worth. To take advantage
of this program, you will have to be current on all your mortgage payments.
For homeowners who already own federally insured mortgages, streamline finances are another
option. These are not available to homeowners with conventional loans. With streamline
refinances you are able to secure an FHA refinance without the hassle of appraisals and endless
amounts of paperwork so it takes much less time and much less work to be approved.
Adjusting your Home Mortgage with a Conventional Refinance
Conventional refinances, like the federal option, are available to all homeowners. Many
homeowners find years later, after they’ve secure a federally insured mortgage, that the new
market trends for conventional loans will fit their needs betters. When this happens, switching to
a conventional loan with a refinance becomes a good option. Unlike the federal programs,
however, conventional refinances are limited to two basic options – the cash out refinance or the
standard refinance.A cash out refi through a conventional lender is very similar to the same type through a federally
approved lender. Both of them give the homeowner access to the equity in the home, and both
will be secured after the necessary appraisals and paperwork have been completed. The
requirements for a conventional refi are less forgiving than a federal loan, and in some cases you
will be limited to the amount you will be able to pull out. Typically, conventional lenders like to
keep the homeowner with around 20% equity in a home mortgage, while federal lenders tend to
be a bit more lenient.
The standard conventional refinance is also very similar to the federal option, in that it is a no
cash out way to revisit a loan and adjust the terms, making them more beneficial to the
homeowners. You will not pull out equity, but you may be able to secure an interest rate or
mortgage payment that works better for your needs.
Refinancing your home can be a very good way to consolidate debt, to make the mortgage more
affordable, or even to get cash for new financial investments. Some homeowners will even
refinance and take on a bigger mortgage payment to pay the house off more quickly. These
homeowners switch from a 30 year loan to a 15 year plan. The type of refinance you choose will
depend largely on your reasons for adjusting your loan, so before you go in to get the process
started, figure out exactly why you’re adjusting the loan. Once you’ve done that you’ll be able to
get with your loan officer who can help you secure the loan you need.