If you, like millions of other Americans, have a mortgage rate that is higher than current rates, you may be considering refinancing.
A refinance can help you cut your interest rate and monthly payments, pay off your loan faster, or achieve another goal, such as cashing out your home equity.
But before you can accomplish any of those things, you must first determine which fha loans san diego type you will employ. Here’s how to pick the right refinancing option for your needs.
What are the many types of mortgage refinance programmes and which one is the best?
There are numerous mortgage refinance options available. But which is the best option for you?
The answer is contingent on the terms of your present loan, your financial objectives, and the amount of equity you’ve established in your property.
The ideal mortgage refinance for most people is one of the following:
- Conventional refinance: This is a good option for decreasing your interest rate or loan term, eliminating PMI/MIP mortgage insurance, or getting cash out of your home.
- Refinance with the Federal Housing Administration (FHA): It’s good for current FHA loans because it allows you to refinance quickly into a reduced rate.
- Refinance with the VA in a streamlined manner: Good for existing VA loans, allowing you to refinance quickly at a lower rate with no mortgage insurance.
- Refinancing streamlined by the USDA: Good for current USDA loans, offers a speedy refinance into a cheaper rate with the ability to incorporate closing fees into the loan
- If you play your cards properly, you could not only cut your rate and lower monthly payments, but also have a chance to cancel mortgage insurance, take cash out at closing, or refinance without any closing charges.
Conventional vs. FHA refinance
The largest benefit to a conventional loan is that you don’t pay mortgage insurance if you have 20 percent equity in the home. But not everyone can qualify.
You need good credit (at least a 620 score) and a decent employment history. FHA refinancing is often preferable for lower-credit customers.
Homeowners who originally accepted an FHA loan — maybe because they had lower credit or desired a low down payment — could be eligible to get rid of their mortgage insurance for good.
If you have at least 20 percent equity, you may be able to refinance to a conventional loan with no MIP and save substantially on your monthly payments. A lender can estimate your home’s value and whether you have enough equity to get rid of MIP.
But even if you don’t, a refinance still might make sense, given to today’s rock-bottom rates. You’ll retain mortgage insurance if you have less than 20 percent equity, but your savings could still be significant.
Here’s a breakdown of FHA vs conventional mortgage insurance.
FHA refinance loans require two types of mortgage insurance:
Upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium
Conventional refinance loans charge ‘private mortgage insurance’ (PMI) annually — there is no upfront fee. But conventional PMI rates will be much higher if you have low credit, in which case an FHA refinance may be the better option
One reason a homeowner might refinance from a conventional loan to an FHA loan is if they want to take cash out, but don’t have a high enough credit score for a conventional cash-out refi.
The FHA cash-out loan typically allows credit scores starting at 600 (though some lenders might go as low as 580), while a conventional cash-out loan often requires a minimum credit score of 640-680. If you currently have an FHA loan and your goal is simply to lower your rate and monthly payment, consider the FHA Streamline Refinance. This low-doc refinance programme is a faster way to refinance into a lower rate without having to re-verify your income and employment or get a new home appraisal.
Reasons to choose an FHA refinance
- Your credit is below 620-640
- You don’t have 20 percent equity in the home\sYou have an FHA loan and don’t want to re-verify the home’s value
- You have an FHA loan now and want to avoid proving current income
- You need cash out but can’t qualify for a conventional loan
Reasons to choose a conventional refinance
- You have 20 percent equity and good credit and want to get rid of mortgage insurance
- You can prove current income and the home’s value
- You want to take cash out