From lower monthly payments to less overall interest rates, refinancing FHA loans can have several benefits. But most FHA holders lack the basic idea of refinancing the loan.
Most FHA holders often reach our expert team asking questions like, is it a good option to refinance an FHA mortgage or how soon can I refinance an FHA loan and how. Considering such inquiries, here we have gathered all the essential information regarding refinancing an FHA loan, but before digging deep let’s discuss the advantages you can avail by refinancing an FHA loan.
Benefits Of Refinancing An FHA Loan
Alongside saving money, homeowners can reap several other benefits by refinancing an FHA loan. Here we have rounded up some of the basic benefits of refinancing an FHA loan.
1. Lower interest rates
A higher interest rate can cost you a lot in the long run while paying off a mortgage. However, refinancing can help you lower the interest rates thus enabling you to save a lot of money.
2. Small Monthly Installments
The second benefit of refinancing an FHA loan is it will enable you to pay smaller monthly installments. As you refinance an FHA loan, you will stretch your payable amount to more years that would automatically reduce the amount of installment you are supposed to pay at the end of each month.
3. No More Mortgage Insurance
FHA loans usually come with mortgage insurances thus the loan acquirer has to pay an additional 1.75% of the loan as the upfront fee. The loan holders are also liable to pay 0.45% to 1.05% of the insurance premium. Upon refinancing your FHA loan into a conventional one, you will get rid of all these mortgage insurance premiums that incur extra charges. However, you will be required to have at least 20% equity in the home to be able to get rid of the mortgage insurance.
4. You Will Be Able To Pay Off The Debt Sooner
If you are eyeing paying off your FHA loan sooner, refinancing the FHA loan into a short-term loan is the best option. Although, you will be able to pay bigger installments but the overall loan won’t take long to pay off, helping you save the amount you were likely to incur on the interest in the longer run.
How Soon Can I Refinance An FHA Loan?
The process of refinancing an FHA loan is simple. All you are required to do is, apply for a mortgage, once you get the mortgage amount, you will use these funds to pay off the FHA loan immediately while you will have an extended period to pay off the mortgage.
The FHA loan acquirers have two options to refinance these types of loans. Either you refinance it into a conventional mortgage or into a new FHA loan keeping in mind the eligibility requirements for both loans.
Following Are The FHA Refinance Options You Can Consider:
1. FHA Simple Refinances
This type of FHA refinancing enables the loan holders to swap their FHA loan for a similar FHA loan with a fixed or adjustable interest rate. This type of refinancing doesn’t provide the cash-out option.
2. FHA Streamline Refinances
The next refinancing option you can count on is to speed up your refinancing process. This type of refinancing will lower your paperwork and has fewer steps. This refinancing option is specially designed to lower your monthly installments and interest rates. Also, it doesn’t provide a cash-back option.
3. FHA Cash-Out Refinance
This refinance option enables the FHA loan holders to apply for another FHA loan that is bigger than their current mortgage. The benefit of these types of mortgages is, you can pay off the initial mortgage while using the remaining amount to fund any expenses.
4. FHA 203(k) Refinances
These types of refinances are also named rehabilitation loans and they allow the FHA loan holders to get a fixer-upper, which will be a bundled loan covering the cost incurring in buying and improving the house. The major benefit these loans offer is, you won’t have to incur additional time and resources while running behind different loans.
5. The Conventional Refinance Loans
The conventional refinance loan is another option you can consider while refinancing your FHA loan. Here, it is important to consider that, such loans are offered by private lenders or credit companies and are not backed by any of the government agencies.
The major benefit you can avail using these refinance options is, you will be able to permanently get rid of the mortgage insurance. However, it is only possible if you have boasted 20% equity in the house.
Related: Conventional Mortgages Vs Jumbo Loans – What’s The Best Option?
The Takeaway
Once you have decided on refinancing options, you would be required to reach your lender for refinancing. The lenders will assess your credit score, debt-to-income ratio, and other essential requirements to finalize whether or not you are eligible for the refinancing.
