Learn how to use federal loans when you refinance your house through FHA. If you don’t have a federal loan plan, you can easily transfer from a conventional loan by requesting a replacement loan. Refinancing is great for acquiring lower rates to help make your mortgage manageable. Also, it helps as far as utilizing cash towards investing in an additional property or increasing the value of your primary home. Here are some steps to take before refinancing.
Find Out What Goes into Fulfilling FHA Requirements
Many homeowners consider FHA loans before conventional loans. Why? Well, conventional loans have a lot of paperwork that’s in the loan process. Also, you have to pay a higher down payment on the home before you can close. This makes federal loans a lot more appealing because you don’t need as much credit and equity as well as paperwork. You can close the property and move in a lot quicker. Here are some requirements you should be aware of regarding federal loans:
- Addresses of your previous 12-month residency
- Employer’s name and addresses for the past two years
- Monthly salary history
- Latest tax history
Always have your W-2 filled out, so there aren’t any inquiries. Always be prepared to clear things up with your lenders before you refinance your house through FHA.
Keeping Regular Mortgage Payments
It goes without saying that the application process is quite strict when it comes to making on-time payments. If you have delinquencies or a record that has a few blemishes that you can’t patch up, you should wait it out. Why? No lender wants to encounter more risk than necessary. Wait until you have about a year of on-time payments. This shows that you are taking the necessary steps to up your credit score and equity. The best thing you can do is be consistent with all of your payments and have proof of it through your record.
What Is the Best Refinance Option to Pick?
Picking the best option honestly depends on a few scenarios. First of all, what is your reason for refinancing? Do you want to refinance your FHA home to get a lower rate? In this case, a federal streamline option would suit you best. Why? You won’t need a lot of equity and credit upfront. Also, you won’t have to wait a long time for approval. However, you don’t have the freedom to use your equity to get cash.
However, if you are a bit more patient, you have more credit and equity, and you have better finances, a cash out refinance is your best bet. You have the option of investing in additional properties. Also, you can finance your vacation, use money toward your college tuition, pay off auto loans, and even start your emergency cash fund for a serious situation. To qualify for this option, you need a credit score of at least 580, which means you will have to pay 3.5% in equity. If you have less than a 580 credit score, you’ll need 10% equity in your home. New homeowners under federal loans don’t have this type of equity and credit in their home yet, so it can take at least a year before refinancing. Also, you need to make sure that you can pay appraisal and repair fees in case the lender wants to update your home’s safety and health measures.
If you have a conventional loan, don’t worry. You can get a replacement loan to move from your existing one to a federal loan. You need employment verification, credit check, and a good debt to income ratio requirement to apply for this transition. Speak with a few lenders to find the best way to refinance your house through FHA.