Choosing to refinance FHA loans provides you with access to a government-backed loan funded by the Federal Housing Administration. Many homeowners choose to refinance their property loan when they want their repayments to better benefit their budget or lifestyle. These loans also make it easier for homebuyers with lower credit scores and higher debt to obtain a home loan.
Here’s more about the different forms of FHA loans that you may want to consider.
Why Would I Refinance?
The many FHA refinance options offer homeowners different types of loans. For example, some homeowners choose to refinance so that they can take advantage of lower interest rates. Others change the overall term of their loan to make it shorter or longer.
Why refinance? You might replace your current home loan with a new one that lasts longer but will lock in a lower mortgage payment. Some homeowners also choose to refinance during the last few years of their current mortgage so that they can pay off their homes faster.
Types of FHA Refinancing Loans
While you have some room to decide on which type of FHA loan refinance option you need, there are qualifications that could limit your choices. For instance, different types of loans require various FHA loan refinance requirements ranging from your debt-to-income ratio to the home’s equity.
In some cases, you can even refinance FHA loan to conventional loan options. This choice particularly benefits homeowners who have recently improved their financial situation or credit scores. If that’s you, why not explore the different FHA refinance loan requirements below?
FHA Simple Refinancing
Did you originally purchase your home with an FHA loan? You’ll most likely qualify for a simple refinancing process. These kinds of loans can help you lower your monthly mortgage payment by taking advantage of lower interest rates.
Qualifications
- Meet the income limit
- Credit score of at least 580
- On-time payments for at least six months
Pros
- Finance closing costs into the loan
- Take co-borrowers off the mortgage
- Take advantage of current interest rates
- Switch between adjustable-rate and fixed-rate mortgages
Cons
- You cannot take cash out of the loan
- You need a home appraisal for approval
FHA Streamline Refinancing
Unlike the FHA’s simple refinancing process, streamline refinancing usually won’t require a home appraisal or repeated credit and income checks. When you refinance FHA loan options this way, you may find that the loan goes through faster than the original one.
Qualifications
- Current FHA loan
- On-time payments for at least six months
- Requires 210 days to have passed since closing on the original loan
Pros
- No appraisal
- Less in-depth income and credit checks
- Great for homeowners with higher loans than their property’s value
Cons
- Take out only $500 in cash
- Must pay mortgage insurance premiums
- Must pay closing costs upfront (typically two to six percent of the loan amount)
FHA Cash-Out Refinancing
An FHA cash-out refinance option can raise your overall mortgage. However, you’ll receive a cash-out against your home’s equity and current property value. Unlike the first two types above, homeowners with conventional loans can switch to an FHA cash-out refinancing.
Qualifications
- Credit score of at least 580
- On-time payments for at least the past twelve months
- Has resided on the property for the past twelve months
- Debt-to-income ratio at or below 43 percent
Pros
- Can receive a lump sum payment
- Allows access to home equity funds
- No restrictions on how you use the cash-out
- May receive a lower interest rate and a lower mortgage payment
Cons
- Requires mortgage insurance premiums
- Requires a home appraisal
- Could increase the overall amount of your loan, increasing your debt
Refinancing Your FHA Loan to a Conventional Loan
In some cases, savvy homeowners will move toward refinancing FHA loan to conventional options instead. It removes the mortgage insurance premiums required by FHA loans. It can also raise the bar on the level of home equity they can borrow against.
These benefits can make a huge difference in homeowners’ financial situations. But to qualify for a conventional loan, you must meet the required credit, income, and credit score requirements. You’ll also need a new appraisal to ensure you have the right amount of equity in your home.
Are the extra steps worth it as you gather information and documents as if you’re applying for a home loan for the first time? Yes. And with patience, you can easily transition your FHA loan to a conventional one that suits your needs.
Work With Professional Mortgage Lenders to Refinance Your FHA Loan
Whether you want to build a new addition to your home or take advantage of the market’s interest rates, you can choose to refinance your FHA loan commitments. Learn more by calling Champions Mortgage at (281) 727-2500 today for FHA loan information in Sugar Land, TX.
