Refinancing Basics

Being a homeowner already you have been familiar with the mortgage process. Refinancing with a FHA mortgage is really no different than with any other mortgage. The one thing you will have in your favor with the FHA product is the protections that a FHA loan has to offer! Not to mention it will be easier to qualify!

If you have a FHA mortgage currently, and wish to refinance; FHA does not check your creditworthiness; once you already have a FHA loan. No other loan program will offer that to you!

Your credit does not have to be perfect to qualify for a FHA mortgage. The FHA program is not credit driven; in fact, even if you have had credit problems, such as a bankruptcy, it's easier for you to qualify for an FHA loan than a conventional loan.

Should you encounter hard times after buying your home, FHA has many options to help you keep you in your home and avoid foreclosure.

Cash out Refinance:

You can take cash out to pay debts; say your credit cards, cars, college, and or for home improvements, etc., or even roll in your 2nd mortgage so you can have one low monthly payment. But if you are taking cash out, your loan will be limited to either 95% or 85% of the appraised value, depending on your qualifications.

Also depending on the state which the property is located, the maximum FHA financing will either be 98.75% or 97.75% of the appraised value of the home or the amount you are refinancing plus closing costs; whichever is lower.

203k Loan – Rehabilitate Program:

This program can also be used to refinance existing indebtedness and rehabilitate a dwelling! This loan can be used for an existing one to four unit dwelling. With this program you can finance up to an additional $35,000. into the mortgage to pay for remodeling of your home.

Fix Rate Mortgage:

You can refinance into a fixed rate mortgage as well with FHA. In a fixed rate, your interest rate stays the same for the life of your loan; normally 30 years. But the FHA program also offers shorter or longer terms as well.

Adjustable Rate Mortgage:

The payments are low in the beginning of a adjustable, but they will adjust during the life of the loan. The FHA uses the One Year Constant Maturity Treasury Index; this index is the most widely used, to calculate the changes in interest rates.

The most that the interest rate on the FHA ARM would increase or decrease in any one year is 1 or 2 percentage points; depending on what type of ARM you select. The maximum interest rate change; over the life of the loan is 5 to 6 percentage points, that is from the initial rate.

But this loan program is good when you know you will only be in the house for a short term, or you know your income will increase, or you plan on refinancing before the loan adjusts to a higher rate.

Reverse Mortgage:

FHA's Reverse mortgage provides the benefits of a reverse as well as a loan that is federally insured. What is a Reverse mortgage? This is a special type of loan that lets the homeowner convert the equity in their home into cash. This loan pays the homeowner cash monthly; you make no payments. Repayment is required when the borrower no longer uses the home as their principal residence.

To be qualified for this type of loan you must be the homeowner and be 62 years old or older, own your home outright or have a low mortgage balance; that can be paid off at the closing with the proceeds from the reverse loan, and you must live in the home. You must receive consumer information from a HUD approved counseling agency, as well.

This type of loan may help seniors stay in their home when their income has declined due to their age.