With the interest rates still hovering at record lows, homeowners all over are looking for refinance options. One of the refinance options available today is the FHA no fee refinance, which is a refinance that doesn’t have a huge out of pocket, up-front cost, but that can have some good financial benefits. Before applying for the no fee option, there are a few things you should know about the loan and how it works, as well as how to apply so you get the best deal for you.
What the FHA No Fee Refinance Really Looks Like
In the real estate world there is no such thing as a free refinance. This is important to realize when you apply for a no cost option. That doesn’t mean that you’ll be paying through the nose to get the refinance, it simply means that though it is called a no fee refinance, you’ll actually be paying those fees down over time rather than up front. So initially it is a no fee option, but in order to secure the FHA no fee refinance you’ll have to roll the closing costs into the loan or take a slightly higher interest rate than you would have if you’d paid them at the closing. The no fee option is a great way to refinance if you don’t have the ability to pay the fees when you close on the loan.
A few items of note with the no fee refinance is that because you are either increasing your mortgage debt or increasing your interest rate, the no fee option does take longer for you to break even on the refinance, and until you break even, that refinance is a liability. Bear in mind that you have a break-even point whether you pay the fees up front or not, it’s simply increased with the no fee option. For many homeowners this isn’t a problem. They intend to stay in the loan long term so the break-even point is a small matter. However, it’s also important to realize that you may end up paying more for you no fee refinance than you would have if you’d paid the fees up front. The higher interest rate or increased mortgage do mean you’ll be paying a little more each month than you would have, and this amount adds up over time. These details need to be taken into account when considering an FHA no fee refinance, but they don’t mean that the refinance won’t be beneficial. Just make sure you crunch the numbers so you are aware of the total cost.
Finding the Right Lender
When you decide to get a refinance, your first step is going to be contacting lending institutions. Ideally you will get refinance quotes from multiple sources, including your original mortgage holder, and these quotes need to be acquired on the same day, or the day following. It’s best if they’re all done on the same day. After you get these quotes you will then need to compare each quote against the others. By comparing the quotes you will be able to determine which lending institution will be able to serve your needs best. It’s important to get as much information as you can, so you’ll need to know the interest rates and APR’s, loan length, down payment (if applicable), and an estimate of all of the fees that will be required before closing. Of course if you’re getting a no fee refinance than you’ll need to discuss whether or not this is an option through those financial sources. Part of these quotes should include a good faith estimate that gives you details about the loan being offered.
The next step is to open negotiations. Once you’ve boiled your options down to those you are considering, you can start negotiating with the financing companies to get some of those fees lowered. It’s not uncommon for homeowners to shave hundreds of dollars off their refinance by being open to negotiation, and don’t forget to negotiate with your current loan holder. You may want to stay with them if they can offer you a better deal than the rest of the options. During this process make sure you find out what documents you need to prepare and give to the financing company so the refinance can be approved.
The process for securing a no fee refinance through an FHA lender is much like getting any refinance. You’ll have to get qualified, meet their requirements, give adequate documentation, and figure out closings costs and contracts. Remember with the no fee refinance to discuss what is required by you on top of those requirements so you don’t come to the table unprepared.