After owning a home for a few years, many homeowners come to a point where they decide that it is necessary to get an FHA refinance on their home loan. There are multiple reasons for this, and they range anywhere from the amount of equity in the home to the current trends of the real estate market. As a homeowner, you may find yourself wondering if revamping your loan is the right step for you, particularly if you are looking at a loan that is federally insured. While it may be a great idea, before jumping into an FHA refinance, it’s wise to look at and consider some of the reasons why people make this choice.
In order to get the initial loan for a house, there are quite a few cards that you have to get in order. Finances have to be figured out, credit has to be repaired or improved, the location needs to be decided on, the house chosen, a good realtor located, the loan, the down payment, closing costs, and on and on. It can be quite a bit of work to get into a home. While making all of these decisions, it isn’t uncommon for a person or a couple to buy a home using whatever means are available at the time the purchase is made. It’s also not uncommon for a better loan option to pop up five years down the road. This is one of the big reasons people refinance – they want a better loan.
When a home is purchased, new homeowners frequently buy the home using an ARM option, which is an adjustable rate mortgage. With this type of mortgage the interest rate changes with the flow of the market. This makes the loan somewhat unpredictable, and can be good or bad for the homeowner depending on the market trends. If the market rates drop, so does the interest on the loan, but if the rates go up, they do on the mortgage and the monthly payment goes up. While an ARM is a great way to get into a home, a lot of homeowners prefer a fixed mortgage where they know, without a doubt, what the rate is at all times. If you have an adjustable rate mortgage, getting an FHA refinance and getting that switched over is something to consider if the payments are getting so high that they’re difficult to cover every month. Federal programs like this are in place for those people who find it difficult to make their monthly payments.
Improving Your Loan
Another benefit of an FHA refinance is the option to cash out the loan. As a home’s value goes up, the equity increases, and sometimes it’s just too tempting not to take advantage of that. By refinancing the loan it’s possible for the homeowner to cash out up to 85% of the loan’s value*. In addition, while they’re cashing out the equity, they can take the opportunity to combine two loans. So, if there is a second mortgage on the home, these can be consolidated. This, of course, makes it that much easier to make payments.
The final reason people consider an FHA refinance has a lot to do with the requirements, which are less staunch than the requirements of a traditional loan. The approved lenders are more willing to work with imperfect credit, subpar financial situations, and higher debt to income ratios. In addition, the rates offered by approved lenders are competitive in the real estate market. They will vary according to the financial situation, as all loans do, but they are not there to skin the last of the money out of your pocket, rather they’re there to help you maintain the home you have.
Refinancing your home is as big a commitment as the original loan was. There are many benefits, but you have to remember that typically the life of the loan is extended – you will more than likely be paying on the mortgage longer. This may not be a problem, however, when you consider the potential benefits. The loan type may change, which can make payments easier. The interest may go down, and the cash from the equity can be rolled into other investments – the home you occupy may be your key to building a financial portfolio. When you play your cards right, refinancing the loan can have a major positive impact on your current and future financial state.