In the real estate market there are two main players that pretty much control how everything runs. The first is Freddie Mac and Fannie Mae. You’ve heard plenty about these. Freddie Mac and Fannie Mae are basically the biggest real estate underwriters in the country. The second main player is the Federal Housing Market, or the FHA as it is commonly known. This is the government administration that insures the loans lenders give to homeowners against default. You’ll find that these two players set the tone for all home loans. Each has their own set of criteria for loans, however, and the government branch is a bit more lenient. Here are a few factors that will affect your FHA refinance rates today.
The Perks of FHA Financing
The biggest advantage of going through the federal program to get FHA refinance rates today is that those rates will more than likely be lower than you would get through the Freddie Mac and Fannie Mae lenders. The federal program was established so more homeowner’s would be able to secure funding to purchase their homes, instead of maintaining a perpetual renter status. Because of this the requirements are less stringent than those of the Freddie and Fannie underwriters.
Most of the time the refinances secured through federal lenders have a lower mortgage rate than those secured through the conventional method, and the federal lenders are more willing to work with homeowner’s who are dealing with imperfect financial situations. In fact, in some cases the lender will still approve a loan even if the credit score has dipped into the five hundreds. This is not ideal and the rates will definitely be higher, but in some cases it is possible. Conventional lenders don’t dip into the five hundreds and even the six hundred range is not preferred. This is considered a greater risk and those homeowners will have a higher rate because of the score.
It is worth noting that the lower rates are especially beneficial to homeowners who have imperfect credit, but if you have excellent credit you may not feel the benefits as much. Conventional lenders are happy to offer competitive rates to homeowner’s with a score of 720+.
Another benefit of the federal loans is that if you already have an FHA loan you may be able to qualify for the streamline refinance, which can help you reduce your monthly payment and improve your mortgage without all of the hassle that comes with a standard refinance. With the streamline you can take advantage of FHA refinance rates today much easier than you would be able to through a conventional lender.
The Downfall of FHA Refinance Rates Today
While the federal administration offers a lot of benefits to the homeowner, these loans have been getting more expensive than they were in previous years, making them less appealing to homeowner’s. Part of this expense comes from the home mortgage insurance, which is required on every federally insured loan. In the past this insurance could be removed, but the requirements have changed and now the home mortgage insurance is required for the life of the loan. For the homeowner this means that the monthly payments will be higher than they would be without the insurance.
As the real estate market continues is fluctuations, you’re going to find that the federal programs aren’t as appealing as they once were. This doesn’t mean that they aren’t beneficial anymore, because they are, but to continue to be a competitive force in the marketplace the federal administration has had to make some adjustments that aren’t always in favor of the homeowner. One of these, is in the mortgage insurance that was mentioned above. A second is, that there is a maximum loan amount which will be determined by the area you reside in. This is especially true on a streamline refinance, where you cannot refinance for more than the original loan amount regardless of the area you live in.
As with any major purchase there are pros and cons to every financing source you go through, whether they are government or not. The key for you is to weigh those pros and cons and discuss them with a loan officer before you jump into the refinance. If you know beforehand what you can expect with your loan, you won’t be blindsided by any of the requirements that must be met before the loan is approved, and you will have a good idea of the rates you’ll be looking at prior to submission of the loan for approval.