FHA Refinance Loans for Beginners

June 25, 2020

FHA mortgage loan interest rates were below the three percent line in June of 2020; these historically low rates have sent many homeowners back to their lenders to refinance their mortgages.

Refinancing can save you money in interest payments over the long term. It can also, depending on circumstances and your financial goals, provide a lower monthly payment or result in cash back to the borrower once the original loan has been paid off and the associated closing costs dealt with.

What do first-time refinance loan applicants need to know about refinancing?

Different Needs Require Different Refinance Loans

If you need to refinance your home loan because you want cash out, your loan will be much different than the type of mortgage refinance designed to lower your monthly payment. There are even refinance loans that help borrowers who have fallen behind on their mortgage payments catch up and prevent foreclosure. All these loans are different.

Refinancing to Get a Lower Rate or Payment

Some FHA refinance loans will apply to any mortgage, FHA or not. Depending on the terms you and the lender agree to, refinancing your conventional loan or other non-FHA mortgage may result in a lower payment or rate. It may result in getting out of an adjustable rate loan into a predictable fixed-rate mortgage. Your FICO scores and other credit qualifications will play an important part in this.

For FHA-to-FHA refinances, borrowers have more options including an FHA Streamline Refinance which allows no cash back to the borrower but normally must result in a benefit such as a lower payment or lower interest rate.

Refinancing to Get Cash Out

FHA Cash-Out Refinance loans are possible for both FHA and non-FHA mortgages. You should not expect to be approved for an FHA cash out loan if you haven’t made very many mortgage payments.

Most FHA refinance loans require you to have made at least six mortgage payments (you may be required to wait as long as 12 months before you can apply for certain refi loans) but in any case the older your mortgage is at application time the better for borrowers who want cash out.

Refinance loans can include extra money for energy-saving improvements. Ask your loan officer about the FHA Energy Efficient Mortgage add-on to the loan and how that may affect your monthly mortgage payment.

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