The Federal housing Administration has been around for more than sixty years. During that time they have made it possible for thousands and thousands of people to become homeowners, people that wouldn’t have been able to qualify for a home loan through conventional means. They also provided other mortgage help such as refinancing. For many homeowners refinancing into an FHA mortgage is ideal, but which option do you choose? Following is a brief guide to some of the most popular FHA refinance mortgages.
No Cost and Cash Out FHA Refinance Mortgages
Within the Federal Housing Administration umbrella you will find many different types of FHA refinance mortgages. There is a refinance that will meet nearly every homeowner need. Two of these refinances are the no cost and the cash out refinances. They are similar to your typical refinance that you can get through conventional lenders, but the difference between these and conventional refinances is that the lenders follow a different set of underwriting guidelines, which means a different set of requirements for approval.
Cashing out the equity in a home has always been a popular step for homeowners, especially when interest rates drop and investment opportunities pop up. When you get a cash out refinance through a federally approved lender you will have to qualify for the loan much like you would if you were getting a first-time mortgage. However, the qualifications for federally approved loans are less stringent than conventional loans, so you can often qualify even if you have low credit and an imperfect financial history. Of course, when you cash out the loan you are removing the equity to use elsewhere, so you will have a higher mortgage but you may be able to counteract this by securing a low interest rate. Bear in mind that all refinances require a financial investment in fees and closing costs, so this will be required on the cash out option.
The Federal Housing Administration isn’t limited to cash out refinances. They also have a no cost option, which is basically a refinance where you adjust the terms of the loan without pulling out any equity. As mentioned above, all refinances require a financial investment and the no cost options are no different. However, with this option you can roll the closing costs into the refinance and pay them down over time, which means you pay very little up front.
Streamline and Short Refinances
The cash out and no cost FHA refinance mortgages are typically geared toward homeowners who are in decent positions financially, those who aren’t struggling. There is a third refinance that is great for these homeowners as well. This is the streamline refinance. And two more options, which are temporary and set to expire within the next couple of years, are the short refinance and HARP. These two are specifically designed for struggling homeowners.
The streamline refinance is actually a good option for both groups – both struggling and non struggling – because it is an easier way to get a refinance. It doesn’t require the paperwork and appraisals of a traditional refinance so you can often qualify even if you are underwater on your mortgage. Keep in mind that this option is only for homeowners who have existing FHA mortgages.
Now the short refi and HARP are only for homeowners who have conventional mortgages. If you’re already an FHA mortgage holder, go for the streamline. If not, look into the short refi and HARP. These two refinances help homeowners who are underwater on their mortgages. One of them, the HARP option, allows the homeowner to refinance the entire mortgage amount. The other, the short refi, is a cross between a short sale and a refinance. With this refinance the lender agrees to forgive part of the debt, reducing the home mortgage to less than the value of the home. Both of them are worth looking into if you owe more on the home than it is worth.
Because there are so many federally approved refinance options available, your job is to research them until you find the one that works for you. Each refinance has a slightly different set of requirements than the others, which is why you’ll want to discuss all these options with a lender or loan officer. Keep in mind that each of these refinances does require that you be current on your mortgage payments. Still, the loan officer will be able to give you the ins and outs and help you determine the best refinance for you. Once that has been done they can guide you through the process until you get approved for a refinance that improves your financial situation.