When money is tight, you have to make choices on what is essential to purchase versus non-essential items. While brand names may seem more appealing, non-brand names can be the same but lower in price. This is the type of situation many homeowners are struggling with when it comes to refinancing their homes. If you have made the decision to go through the refinancing process, the next step is to determine whether to choose a conventional or an unconventional refinance. Before a choice can be made, it is important to understand the pros and cons of each in order to see which can remedy their current financial situation. Today’s conversation will be to discuss FHA refinance mortgage and a conventional refinance to see which may benefit you the most.
Looking at the Pros and Cons of a FHA Refinance Mortgage
When it comes to most things in life, a benefit must be compared to a drawback in order to decide if whatever is in question is worth doing. The same applies when contemplating a FHA refinance mortgage. In order to make a fair assessment, let us look at the benefits and drawbacks for applying for this unconventional loan. FHA stands for the Federal Housing Administration and their goal is to offer borrowers who cannot refinance through a conventional loan the opportunity to get a new mortgage through lenders that they back up. Qualifications for approval are one example of how homeowners are better off with this type of refinance. Borrowers who have a bad or weak credit score will have a better chance to qualify with a FHA lender than with a conventional lender. Another reason refers to the closing costs that a homeowner must contend with. This includes things such as title searches, appraisals, application fees and surveys can add up to hundreds of dollars that the homeowner is responsible for. Being how this type of a refinance that closing costs are set to strict standards and are defined rigidly, you could estimate by applying three to six percent of your mortgage principal that is left, to get a rough idea of what you will have to pay. Conventional new mortgages have their own standards and can vary depending on the lender; therefore, it would be easier to get a better understanding of the closing costs with an unconditional lender. Also, one type of a new loan that government backed lenders can offer is known as the streamline refinance. This can be beneficial because unlike a conventional loan, the streamline refinance does not require another credit, appraisal or income check to qualify.
The Cons of a FHA Refinance
While this sounds like the way to go, there are some drawbacks with going with this type of a new loan. One issue deals with being required to carry mortgage insurance in case the mortgage ends up in default. Unfortunately, if your original loan was attained through a conventional lender you would see a raise in your monthly payments roughly of $30 to $50. Another issue deals with one of the benefits previously mentioned, which is the strict requirements. While some may like the idea of rigid standards, others who prefer flexibility would be better off with a conventional loan. Speaking of conventional loans…
Flexible Mortgage Insurance is one Reason to go With a Conventional Mortgage Refinance
As for the drawbacks with a conventional loan, that has been discussed above. I will also add, that stricter guidelines in regards to usually not approving applicants with a weak credit history as well as conventional loan regulations that vary from one state to another– can turn homeowners away to seek unconventional loans. Despite this, there are a number of reasons why a conventional loan is better than one backed by an administrative lender. One reason is the availability of different conventional loans to choose from while government backed loans are limited. Most consumers would prefer a variety of options rather than being limited to one or two. Another reason has to do with the flexible mortgage insurance premiums already mentioned. Applicants who purchase this insurance are able to pay it for as little as two years while with an unconventional loan homeowners must pay for at least five years. The financial situation as well as your history will help determine which direction to go in order to successfully refinance your loan.
Know what to Consider
In regards to many decisions people must make every day, it would make things easier if the good versus bad balance leaned favorably to one side. That way, a choice could be made quickly without having to waste valuable time making a decision. Alas, this is usually not the case as the balance between the two can be difficult to determine. When deciding between an FHA refinance mortgage and a conventional loan, it is not an easy choice to make. Both have their fair share of benefits as well as their drawbacks to consider. The bottom line comes to the option that is available for an applicant to pick from and then decide which has the most benefits while having the least drawbacks to it. Now, if you are interested in knowing the history behind both conventional and unconventional loans, I am afraid that will have to be a conversation to have at another time.