Within the real estate world, there are many different loan types, and there are many different types within the types. Refinances are one of them. When you think of a refinance, it sounds fairly simple. Go to the bank, ask for a different type of loan, and get approved. As a homeowner you have to sort through the types of programs to find the loan that works for you. Of course, there isn’t a right or wrong loan to pick. You simply have to find the one that is going to get your goals met. Here are a few of the most common programs available.
Conventional Lender Mortgages
When it comes to real estate, there are two major underwriting guidelines that are followed by all lenders. These are the Freddie Mac/Fannie Mae guidelines and the FHA guidelines. Most of the time the lenders that follow the Freddie and Fannie guidelines are known as conventional lenders. They are in a position to help people secure loans and get mortgages refinanced, but they aren’t usually able to help homeowners who are struggling financially or who are recovering from a financial slump.
Conventional lenders have a variety of home refinance programs that they offer. The most well-known of these are the cash out option. Typically, the cash out option is done by those homeowners who have a bit more equity. With a cash out refinance you can take your equity which increases the mortgage amount. At the same time, you will want to do what you can to reduce the interest rate, so you get a two-part benefit.
FHA Home Refinance Programs
Conventional lenders are great for people who have fairly stable financial situations, but not everybody does and for those people the FHA lenders tend to be the better option. Many FHA home refinance programs are similar to those of a conventional, including the cash out. In addition to these programs, there are multiple programs in place for homeowners who don’t have equity or who are recovering from financial hardship. These programs allow homeowners to refinance and take advantage of lower interest rate despite the fact that there is very little collateral to back it up. FHA lenders are able to take on riskier loans because the loans they offer are insured by the government. They know if the homeowner defaults they aren’t going to lose their investment.
The programs designed for people with poor finances typically fall under the Making Home Affordable programs. They include HARP, HAMP, and the Short Refinance. HARP and the short refinance specifically target those who have little to no equity in the home but need a refinance. HAMP isn’t a refinance. It’s a modification program. Again, it targets struggling homeowners and it has proven to be a good way for many homeowners to regain control of their mortgage.
Because of the variety of refinance options available, you do need to do some research before you apply for a refinance. Create a goal in mind of what you want the refinance to help you achieve financially. This way when you’re approaching lenders and getting quotes, you’ll have a clear idea of the refinance you need. All of the refinance options are going to be great for some homeowners and terrible for others. That’s why there are so many because there isn’t a one size fits all program. Once you’ve decided the refinance you need and have a clear goal, then you’ll be in a good place to contact your lender and move forward with the refinance you need.