The Many Types of FHA Refinance Home Loans

photodune-5716718-mortgage-calculator-xsRefinancing your mortgage can be a big deal. There is a lot of paperwork involved and for some it may not seem worth the hassle. However, with an FHA refinance you can often lower your monthly payments, your interest rate, and even the overall amount paid on the loan, depending on the terms you end up with. In some cases the refinance may even be the key that keeps you from defaulting on your loan and going into foreclosure. What you need to do is get the refinance that is best for your financial situation. That’s why there are many types of FHA refinance home loans, so homeowners can get the loan they need.

Cash-Out and Streamline Refinances

When refinancing through the Federal Housing Administration there are two common refinance types that can be used by homeowners who are in good standing on their mortgages. These are the cash-out option and streamline refinances.

The cash-back option is a great refinance for homeowners that want to adjust the terms of their loan, taking advantage of rates today, while simultaneously pulling out the equity they have built up over the years. The benefits of the cash-out option are two-fold, especially when you’ve planned correctly. By reducing the interest rate, many homeowners are able to save money over the life of the loan, paying less than they would have if they had stuck with their original interest rate. This one can be catchy though, because every situation is different so before you get a refinance of any kind, make sure you plug in the numbers on a refinance calculator to get an idea of whether or not the move will save you any money. The second benefit to the cash-out refinance is that the equity you pull out of the home can be used to buy more investments, such as a second property, which could then be a rental house giving you residual income. If you play your cards right the cash-out option can have major positive financial impact.

The second federal option for homeowners who are not in distress is the streamline refinance. This refinance is only available for homeowners who have existing federally insured loans. For those people who want to transfer to an FHA loan, they won’t be able to do the streamline, but they will be able to switch using a standard refinance. The streamline refinance is great because it makes it possible for you to adjust the terms of your loan, reducing interest rates and mortgage payment, without all of the headache and hassle that comes with a standard loan. The one downfall is that you cannot cash out the equity with this loan. Part of the approval process requires that the loan reduce your monthly mortgage payment.

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FHA Refinance Home Loans for Distressed Homeowners

The loans mentioned above are best for people who are not in distressed financial straits, but want a loan that works better for them. However, the Federal Housing Administration was created to help people get a loan or maintain the loan they have, so for people who are underwater on their mortgages (they owe more than the house is worth) there are a few options through the federal programs.

First, you have the HARP program, which is the Home Affordable Refinance Program. This program is for people who have gotten their loan through a conventional lender. A conventional lender follows the underwriting guidelines of Freddie Mac and Fannie Mae, rather than those established by the Federal Housing Administration. With this program you are able to get back on top of your mortgage, rather than remaining underwater. This program does require that you be current on your payments with all payments of the last twelve months being made on time.

The second federally insured refinance option is the short refinance. This is similar to HARP, except it is for people with existing federally insured loans. With a short refinance the mortgage company forgives part of the debt, leaving you with a home mortgage that is slightly less than the value of the home. No, you don’t walk away with equity but your home becomes an investment once again, rather than a liability.

When you decide to refinance through a federal program you learn quickly that there are many FHA refinance home loans. You pretty much just have to take your pick of the loans, determining which one will work best for you. From there work closely with your lender and hopefully in the end you’ll be approved for a loan that betters your financial situation.

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