The Federal Housing Administration was created in an effort to make it possible for more Americans to become homeowners and for more homeowners to keep their homes when they face foreclosure and loss. When you ask yourself if you should have FHA refinance my house, the answer is going to depend on your financial situation and what the situation is with your home. That being said, here are a few of situations where FHA refinances are worth considering.
Imperfect Credit Score
When you boil it down the credit score is pretty much the make it or break it factor when it comes to any major purchase, from a car, to a home, to a refinance. If you’re wondering if you should have FHA refinance my house, start first by looking at your score. If it is lower than seven hundred then you definitely want to look at federally approved lenders as well as conventional lenders. The lower your score goes, the more you’re going to want to work with a federal lender.
Federally approved lenders don’t carry as much risk as a conventional lender ; their loans are insured by the federal government. Because of this they are willing to work with homeowners who have poor credit when conventional lenders are unable to. Conventional lenders carry more risk so if you want a great rate through them you need to have a great score. As a good rule of thumb, if you’re in the seven hundred range contact both types of lenders, if you’re between 650 and 700 contact both but you’ll probably get a better deal from a federally approved lender. Anything lower than 650 you’ll more than likely be better off with a federal lender because they specialize in working with people who have imperfect finances.
Can I FHA Refinance My House When I’m Underwater?
As mentioned above, the Federal Housing Administration was created for people who aren’t on top of their finances. Due to the economic downturn many people aren’t on top. In fact, they’re underwater on their mortgages which means they owe more on the house than it is actually worth. Nobody wants to be in this boat and when they get in this boat, getting out can be very difficult. But difficult isn’t impossible. The FHA has programs in place designed specifically for these homeowners. These are the short refinance and HARP. Lenders who work within these programs refinance the homes – typically improving interest rates and mortgage payments – which frees up a little space for the homeowner to start making improvements financially. Depending on the program you choose, you may be able to have some of the debt forgiven or you may simply refinance the entire thing until the mortgage terms fit you better. Either way, the goal is to remove some of the stress of the underwater mortgage and put you back in a situation where you can regain control.
The reason these programs are in place is because nobody wants to deal with a foreclosure. When a home is foreclosed on it becomes property of the mortgage holder and that company then has to turn around and sell it, typically at a loss. So they lose money on the mortgage and they lose time and effort in the resale. It is, in reality, much easier to simply refinance the mortgage into something more workable.
Bear in mind that regardless of your situation the refinance will not be free. No refinance is. There will also be closing costs and down payments, though in many cases these can be rolled into the loan. And if you do the short refinance, where part of your debt is forgiven, it is going to reflect on your credit. But the impact of the short refi will be less painful than the impact of a foreclosure so it’s worth doing. Also keep in mind that these programs are typically for people who are underwater on their mortgages but not behind on their payments. You do need to show that you are making the payments and being responsible with the loan despite the financial setback.
When you decide to have FHA refinance my house you do so because they are giving you the best opportunity with your current financial state. It may not be the perfect solution to your current situation but it is a solution that can and often does open up opportunity for people when there wasn’t an opportunity before. As with any major financial purchase, you’ll want to discuss the options with a professional to determine which step will be best for you.