Determining when and if you should refinance is not always a simple task. There are a lot of variables that can and will affect whether or not the refinance is a financially smart move, or whether it will land you deeper in the hole. A question you may want to ask when considering the refi sounds something like this…“Should FHA refinance my mortgage?” If you’re wondering why you should ask this question, read on and you’ll learn a little more about what the Federal Housing Administration can do for you.
When It Helps to Have FHA Refinance My Mortgage
When you’re a homeowner the question of refinance is nearly inevitable. You may ultimately decide not to refinance, but more than likely at some point during the life of the loan you are going to start wondering if it is right for you. When you’re asking the question ‘should FHA refinance my mortgage’ the answer is yes, if your credit isn’t where you would like it to be but you want the benefits of the refinance. While the Federal Housing Administration does have a certain criteria that must be met, it is much more lenient than the criteria you will find with a conventional lender.
A good time to consider an FHA refinance is if you live in the home you want to refinance and you are considered low or average income. You may also want to consider a federal refinance if you are looking at the possibility of a default on your home loan or even a foreclosure. And last, when the mortgage payments are getting too much for you to handle due to changes in your financial situation or even in the loan itself (in the case of an ARM loan).
If any of these scenarios sound like something you are experiencing, a federal refinance may get you into a place financially where you are able to handle the mortgage payment more effectively, keeping control of your home and finances rather than watching them fall apart.
Qualifications for Federal Approval
As mentioned above, there are certain qualifications that must be met by the homeowner for approval on a federally insured loan. The first item of business will be your financial situation. This includes your credit score, financial history, and debt-to-income ratio. Most of the time federally approved lenders will consider credit scores that dip into the five hundreds, but you will more than likely have a higher interest rate if your score happens to be that low. Your debt-to-income ratio is going to have a greater bearing on whether or not you are accepted for approval. If it is too high, you may prove to be too big of a risk even for a federally approved lender. Typically speaking, the mortgage payment after approval of the loan shouldn’t be more than 31% of the monthly income, with your total debt-to-income ratio no higher than the low forties.
Your credit history will have an impact on your approval rate as well. While a refinance is often done to avoid foreclosure, sometimes there is foreclosure and bankruptcy in the financial history. When dealing with either of these scenarios, you will not be able to qualify for an FHA loan of any kind, whether it is a refinance or a standard 203b, until two years have passed since completion of the bankruptcy and three years since completion of the foreclosure. Depending on the reason for these scenarios, there may be ways around this, but for the most part you will be looking at this time frame.
If you’re already working with a federally approved lender – meaning you already have an FHA loan – you may be able to refinance without all of the headache that comes with most refinances. You can do this through the streamline option, which enables you to revamp your loan without an appraisal and without all of the paperwork. This option is available to homeowners who are looking to reduce the monthly mortgage payment and are still in good standing on the loan.
Generally speaking when you ask yourself ‘should I have FHA refinance my mortgage’ the answer will be a resounding ‘yes’ if you are in a financial pickle and the refinance will make it easier for you to manage the loan. When revamping the loan reduces your home mortgage and/or interest payment, or reduces the overall cost of the loan, it is going to be something you will want to consider.