Should I refinance my FHA loan?

Refinancing (of any kind) is essentially just paying off one loan by getting another loan. The rule of thumb is that if you can benefit from a refinance, either by getting better loan terms or a lower interest rate, you should consider doing it. There are plenty of great reasons for homeowners to refinance their mortgage, including:

• Lowering their monthly payment
• Paying off their loan sooner
• Switching from an adjustable-rate loan to a fixed-rate loan
• Tapping into home equity to take cash out

If you’re looking to take advantage of a lower interest rate, better loan terms, or get cash out, you should consider a refinance.

What are my FHA refinance options?

If you want to refinance your FHA loan, there are two basic options: Refinance to a different loan type, or refinance to another FHA loan with new terms.

Refinance to a different loan type

You can replace your FHA loan with another one, such as a Conventional loan, which isn’t backed by the government. While it may be harder to qualify for, there are plenty of benefits that come with a Conventional mortgage. For starters, you could avoid mortgage insurance entirely by replacing your FHA loan. As long as you’ve reached 20% equity in your home, you won’t have to pay any mortgage insurance on a Conventional loan.

Pro Tip: Simplify your budgeting and see what rates you can expect with our refinance calculator.

Refinance to another FHA loan

If you decide to stick with an FHA loan, you’ve got a few options for your refinance.

FHA rate-and-term refinance

Most homeowners opt for a rate-and-term refinance to either take advantage of a better rate or switch from an adjustable-rate mortgage to a fixed-rate mortgage. Lenders will require you to go through a credit qualification process and a new appraisal when you apply for the loan. However, it’s possible you could get a better interest rate if you’ve built up equity in your home.

FHA Streamline refinance

Like the name suggests, this loan is more streamlined than a rate-and-term refi because it allows you to refinance with less paperwork and fewer steps. Not only can you lower your interest rate, reduce your monthly payment, or shorten your loan term, you can get it done without having to go through a home appraisal, provide bank statements and your credit report, or verify your income. The lender will just use the information gathered from your initial FHA loan. The Streamline is a better option when your home hasn’t risen much in value, or you’re planning to sell your home soon, because it helps you avoid adding closing costs to your principal balance.

FHA cash-out refinance

If you need cash to make home improvements, consolidate debt, or anything else, the FHA cash-out refinance* is for you. A cash-out refi allows you to take out a loan that’s bigger than your current mortgage, pay off the original loan, and pocket the difference. You can use the cash for whatever you need. You must have at least 20% equity in your home to qualify.

*Using your home equity to pay off debts or make other purchases does not eliminate the debt or the cost of the purchases, but rather increases the loan amount of your mortgage to be paid according to your new mortgage terms.

FHA 203(k) refinance

Planning home renovations? Consider refinancing to an FHA 203(k) loan. This loan is specifically designed to roll your project costs and mortgage into one convenient loan. Why is that a good idea? If you take out a separate loan or pay for renovations with a credit card, you could have to pay more closing costs and higher interest rates. Plus, you’ll take more than one hit to your credit.

More questions to ask to determine if you can refinance your FHA loan.

Is it the right time to refinance my FHA loan?

If you already have an FHA home loan, and you’ve made at least six months of on-time payments, you should be good to go refi. For FHA cash-out refis, you should provide 12 full months of on-time payments.

Are there closing costs?

Like any loan, there are closing costs, but with a Streamline refi, you won’t have to pay for a credit report or appraisal like you might with other loans.

Will I still need to pay mortgage insurance?

If you refinance your FHA loan to another FHA product, you’ll still need to pay mortgage insurance premiums (both upfront at closing and in monthly payments) on your new refi.

What documents will I need to refinance my FHA loan?

For most FHA refinances, you’ll need to provide your credit report, full income and employment verification, and undergo a home appraisal. You should also check with your lender to find out any specific documentation you may need to provide for your refinance.

Can I refinance an FHA loan: Final takeaways.

To answer your initial question, you absolutely can refinance your FHA loan. Whether or not you should, and which type of refinance is right for you, depends on your financial goals, your homeownership plans, and current market conditions. If you’re not sure where to start, our team is here to help.

If you want to refinance your FHA loan, there are two basic options: Refinance to a different loan type, or refinance to another FHA loan with new terms.

The post Can I Refinance an FHA Loan? What You Need to Know appeared first on Cardinal Financial.

What is an FHA Streamline Refinance?

FHA Streamline Refinance is a loan designed by the Federal Housing Administration to help homeowners make their FHA mortgage more affordable without the burden of an extensive qualification process. Easier qualification means an easier, simpler process for you, the homeowner.

Plus, it’s a win-win for the FHA. Since they already insure your mortgage, they presume there’s a lower chance that you’ll default. At the same time, they’re helping you get a better, more affordable loan.

What are the benefits?

The FHA’s streamline refinance program is loaded with benefits for borrowers who qualify. Here’s a quick list to give you an idea:

• Lower your rate and/or payment just like you would with a Conventional home loan refinance.
• Offered as a five-year adjustable-rate mortgage (ARM) or as a fixed-rate loan with a term of 15, 20, 25, or 30 years.
• Lower credit requirements. 
• Limited documentation. That means no income requirements, no proof of employment, no coughing up bank statements, and no asset verification required.
• No home equity? No problem. Unlimited LTV means you’re still eligible even if you have little or no equity in your home.
• No appraisal required.

How does an FHA Streamline work?

Of course, as with any money you borrow, some restrictions apply. For starters, there has to be a demonstrated net tangible benefit in a FHA Streamline Refinance transaction. Net tangible benefit means you can only do an FHA Streamline Refinance if it benefits you. Would a FHA Streamline Refinance lower your interest rate? Would it convert your current mortgage from an ARM to a fixed-rate loan? Put simply, would it leave you in a better position than before? Great! That’s the kind of borrower the FHA is looking to serve with their FHA Streamline Refinance program.

You can’t increase your loan balance to cover refinancing costs and your new loan cannot exceed the initial mortgage amount. When you do a FHA Streamline Refinance, your new loan amount is limited to the current principal balance plus the upfront mortgage insurance premium. That means you’ll either have to pay closing costs out of pocket or get a “no-cost” loan. And really, “no-cost” should actually be called “no out-of-pocket costs” because it means your lender agrees to pay the closing costs if you agree to pay a higher interest rate.

Are there any downsides?

If getting cash out of your home equity is your goal, an FHA Streamline Refi may not be right for you. Why? Because you can’t get more than $500 cash back for minor adjustments in closing costs.

Like your original FHA loan, an FHA Streamline Refinance still requires you to pay mortgage insurance in both a one-time, upfront mortgage insurance premium, which you pay at closing, and a monthly mortgage insurance payment.

How can I qualify?

Your mortgage must be current (not delinquent) when you apply for your FHA Streamline Refinance. You’re only allowed to make one late payment on your current FHA mortgage in the past year. And on top of that, your mortgage payments for the last six months must have been made within 30 days of their due date. Since FHA Streamline Refinances require less verification, this kind of payment history will show your lender and the FHA that you can responsibly pay off your current mortgage.

Finally, you must have made at least six monthly payments on the mortgage being refinanced, and the six most recent payments must have been made on time. In addition, at least six months must have passed since the first payment due. At least 210 days must have passed since the date you closed.

The bottom line

The most important thing to remember about an FHA Streamline Refinance is you can only qualify for this loan if you’re refinancing your current FHA mortgage to a new FHA mortgage. If you’re refinancing to or from a different loan type, this option is not available. The good news is that since you already qualified for an FHA loan when you bought your home, it’s almost guaranteed you’ll qualify for a new FHA loan when you refinance.

The post FHA Streamline Refinance: What It Is and How It Works appeared first on Cardinal Financial.

If you’re using an FHA loan to buy a home, the property must go through an FHA appraisal. This is not an inspection, but the appraiser will check that the house meets certain safety standards in addition to determining the property value.

In this blog, we’ve provided good-to-know info on what to expect during the FHA appraisal process, including an inspection checklist of what the appraiser will look for.

FHA Loan

What is an FHA appraisal?

The FHA appraisal process is unique in that the appraiser basically performs double-duty as both an appraiser and an inspector.

When you use a Conventional loan to buy a house, your appraiser is mainly concerned about the current market value of the property. But when you use a federally-insured FHA loan, the appraiser has two objectives: Determine the house’s value, and inspect it to make sure it meets minimum standards for health and safety set by the Department of Housing and Urban Development (HUD).

The real difference between the two is the level of inspection that HUD requires in order to fund the loan.

If the FHA appraiser flags certain issues—peeling paint, loose handrails, or other safety issues—the loan is put on “hold” until they’re fixed. That’s not the case with a regular appraisal used for a Conventional home loan.

While a standard non-FHA appraisal only determines the true market value of a home, an FHA appraiser also inspects the entire property for safety and soundness standards.

FHA Home Inspection Checklist

During an FHA home inspection, the appraiser will inspect and note major safety concerns. Here is a checklist of common items an FHA appraiser looks for:

General Health and Safety

• Foundation or structural defects
• Whether the utilities (water, sewage, heat, and electricity) all work
• Chipped or peeling paint in homes built before 1978
• Incomplete renovations
• Water damage
• If the property is accessible to vehicles, especially emergency vehicles
• Exposed wiring and uncovered junction boxes
• Whether the house is too close to outside hazards, such as a leaking oil tank or a waste dump
• Excessive noise, such as being close to an airport
• Missing handrails

Exterior

• Leaky or defective roof and holes in the siding
• Leaning or broken fencing
• Doors that don’t properly open or close
• Condition of gutters, chimney, stairs, railings, and porches
• If swimming pools are up to code

Every Room

• Whether each room has electricity
• Whether each room has a window or door to the exterior to be used as a fire escape

Kitchen

• Missing or broken appliances usually sold with a home, including stove and refrigerator
• Broken or leaking sink

Bathrooms

• Broken or leaking toilet, sink, or tub/shower
• No ventilation (either an exhaust fan or window)

Crawl space or basement

• Basement moisture
• Evidence of past or present standing water

Heating and Plumbing

• Inoperable HVAC
• Major plumbing issues and leaks

These are some of the common items an FHA appraiser looks for, but other issues that might make a house unsafe could keep it from passing.

At what point in the process do I get an FHA appraisal?

First, your lender must conditionally approve your loan. Once you’ve cleared the initial requirements for income, assets, credit, and other qualifying factors, you’ll be able to move ahead with an FHA appraisal.

It’s done this way so you avoid spending money on an inspection, just in case your loan isn’t conditionally approved.

Who pays for an FHA appraisal?

The lender typically orders the home appraisal, and the buyer pays for it. The average FHA appraisal costs between $300-$500, but it may cost more depending on several factors, including:

• The home’s square footage
• The property type and location of the house
• How much land is included in the property
• Whether the home has extensive damage

How to Negotiate Post-Home Inspection Repairs like a Pro

What happens after the appraisal?

If the appraiser determines that the house meets safety and soundness requirements, great! Your lender has the green light to close on your loan.

Even if the appraiser notes minor issues (like dripping faucets, cracked windows, missing handrails, etc.), a seller can make these corrections fairly easily. As long as these repairs are made before the appraiser returns for their final inspection, the loan can still move forward.

Sometimes, however, the appraiser may find serious damage to the house and recommend that repairs must be completed before you can move in. If the property has hazardous conditions, such as holes in the floor or a deteriorated roof, you may be unable to close on your FHA loan until they’re addressed. If the idea of a lengthy repair process doesn’t interest you, you could simply look for another property that can meet FHA standards.

Do I still need to get an independent home inspection?

You should… but it’s not legally required. HUD strongly encourages home buyers to order an independent home inspection, separate from the “health-and-safety” inspection that your FHA appraiser will make.

In fact, the FHA loan process requires signing a disclosure that states that you understand the importance of getting an independent home inspection, and have considered one before signing the contract with the seller.

To clarify: It’s only required to have an FHA appraisal to buy your potential new home. However, it’s considered a best practice to order an independent home inspection so you can protect your interests.

What’s next?

FHA loans can be a great choice for borrowers of all kinds. They’re especially popular with first-time home buyers because they make homeownership accessible for those who may not have a large down payment or have imperfect credit history. Interested in learning more? Contact us today to discuss your options with a loan originator, or start with a free rate quote.

Have you learned anything new about FHA appraisals? Let us know over on Facebook or Twitter!

The post FHA Home Inspection Checklist: What Appraisers Look For appeared first on Cardinal Financial.

But what about second-time home buyers? What about people who are looking to expand their real estate portfolio? And just how many FHA loans can one have? We’ve got all of these answers and more useful tidbits on FHA loans below. Let’s get into it.

Can I get an FHA loan more than once?

When it comes to a lifetime allotment of FHA loans, we’ve got good news: The limit does not exist. Simply put, you can apply for and receive multiple FHA loans throughout your lifetime.

However, carrying more than one FHA loan at a time? The rules advise against that.

Of course, this rule makes sense when you remember that FHA loans are intended for home buyers who are looking for a primary residence — not a vacation home or rental property. So, generally speaking, if you want a second FHA loan, you’ll need to pay off the first one.

Rules can be flexible though, and exceptions may apply to that rule if you meet specific criteria, such as:

• Your new home is more than 100 miles from your current home. Ever heard of the 100-mile rule? You may be able to qualify for a second FHA loan if a new work opportunity requires you to move at least 100 miles away from your current one, for example..
• Your family has grown significantly since you bought your home. There’s only so far you can plan ahead because life can be unpredictable. If your two-bedroom home becomes too small as you grow into a family of five or six, then you may have a case to qualify for another FHA loan.
• You’re a co-borrower on an FHA loan, but you want to buy your own property. Things change. Plans change. Perhaps you’re going through a divorce and are on the market, or maybe you bought a home with friends and have realized you need more personal space. In cases like these, you may qualify for a second FHA loan.
• You’re buying a HUD real-estate owned (REO) property. In this instance, if you’re looking to invest in an FHA-foreclosed home, you’ll need to put down at least 25% — which may counteract one of the main benefits of an FHA loan: Lower down payment requirements.

How can I qualify for multiple FHA loans?

Understandably, your mortgage lender will want to know that you can afford to repay more than one home loan at a time.

Like you did for your first FHA loan, you’ll need to meet the minimum credit score, debt-to-income ratio, and down payment requirements to qualify. On top of that, your lender will check your income and assets to make sure you’ve got the funds to back the buy. You’ll also need to be clear of any foreclosures for at least three years to qualify for another FHA loan.

Depending on your credit score, you could put down as little as 3.5%. Keep in mind, you’ll need to pay mortgage insurance (MIP, or your mortgage insurance premium) throughout the life of each of your FHA loans. Unlike other loans, which offer the ability to remove mortgage insurance after meeting certain requirements, FHA MIP stays with you for the life of the loan unless you refinance into something like a Conventional loan.

If the reason for your second FHA loan is to accommodate your growing family, you’ll need to provide evidence that your current home doesn’t meet your needs anymore. In this case, you’ll need to have at least 25% equity in your current home to be eligible for a second FHA loan. If not, you’ll either have to pay the principal balance down further, or use other loan financing.

What are the alternatives?

If you don’t want to hold two FHA loans at the same time, there are other options to consider. You could:

• Sell your current home
• Refinance your current home to a Conventional loan
• Rent or lease a new home until your current home sells
• Buy a new home with another loan type

Pro tip: If you need flexible qualification standards, a USDA loan can get you in a home in a rural area with no down payment requirement.

So, what’s next?

FHA loans are an incredible option for home financing, whether you’re looking to buy or even refinance your current loan. FHA loans are especially popular with first-time home buyers because of their flexible credit, income, and down payment requirements. If you’re interested in learning more about FHA loans, contact us today to chat with one of our experts.

You can get multiple FHA loans throughout your life. However, the general rule is that you can only have one FHA loan at a time.

The post How Many FHA Loans Can You Have? appeared first on Cardinal Financial.

The time is right, and you’re ready to buy a house—the first step: Figuring out the differences between the various loan types available. Luckily, we’re here to help you through your homework.

Below, we’ll dive into two of the most popular home loan options, FHA vs. Conventional, explain their key features, and break out a couple scenarios so you can learn which might work best for you.
FHA Loan

What is an FHA Loan?

An FHA loan is a mortgage that’s insured by the Federal Housing Administration. FHA loans are available to borrowers of all kinds, from first-time home buyers to homeowners looking to refinance. FHA loans are often popular with first-time home buyers because they allow low down payments. For instance, you can put down as little as 3.5% for a fixed-rate FHA loan if your FICO score is high enough. It’s important to remember that the lower your credit score is, the higher your interest rate will be.

A few other things to consider about FHA loans:

• An FHA loan can be used to purchase a primary residence.
• You can put down as little as 3.5% for a fixed-rate loan. Even if you don’t meet the credit score to qualify for the 3.5% down payment, you may still qualify with a 10% down payment.
• It can be easier to qualify. Lower credit scores and down payments are accepted and this loan type is more forgiving when it comes to bankruptcies and other financial issues.
• You must pay a mortgage insurance premium, regardless of the size of your down payment.
• You can refinance an FHA loan to lower your rate or change your term or even to take cash out.

It can be easier to qualify for an FHA loan. Lower credit scores and down payments are accepted and this loan type is more forgiving when it comes to bankruptcies and other financial issues.

Conventional Loan

What is a Conventional loan?

Conventional loans are the most popular option for borrowers looking to purchase or refinance a home. Borrowers may choose between fixed- and adjustable-rate mortgages with terms from 10 to 30 years. Conventional mortgages are not insured or guaranteed by any government agency. They are granted by private mortgage lenders, such as banks, credit unions, and other financial institutions. Credit standards are a little more strict than with FHA loans. Depending on specific loan characteristics, you could put down as little as 3% for a credit score as low as 620.

A few other things to consider about Conventional loans:

• You can use a Conventional mortgage to purchase a primary residence as well a second home or investment property.
• Depending on specific loan characteristics, you could put down as little as 3%.
• You have the option of choosing between an adjustable or a fixed-rate mortgage.
• You can refinance a Conventional loan to lower your rate or change your term or even to take cash out.

Conventional mortgages are granted by private mortgage lenders, such as banks, credit unions, and other financial institutions.

What are the pros and cons of FHA loans and Conventional loans?

All mortgages have characteristics that may be advantageous and disadvantageous depending on your specific scenario. It’s best to speak with a mortgage loan originator about which option best suits you. Here are the most common pros and cons of FHA and Conventional loans.

Pros and cons of FHA loans

FHA loans are generally popular among first-time homebuyers who don’t have a large down payment saved up, or have experienced bumps in their credit history. Here are some important factors to consider.

Pros:

Qualification

FHA loans can be easier to qualify for. FHA loans have less restrictive requirements on debt-to-income ratio and are more forgiving of past bankruptcies or foreclosures.

Low down payment

To qualify for the low down payment of 3.5%, you must meet a minimum FICO score specified by your lender. This score can vary from lender to lender, but it is generally lower than the score requirements of other loans, including conventional. If you do not have the minimum score, you may still be eligible for an FHA loan, but your down payment may increase to 10%.

Cons:

Mortgage insurance premiums

Mortgage insurance is required on all FHA loans, regardless of down payment size. An FHA loan requires that you pay two types of mortgage insurance premiums — an upfront MIP (equal to 1.75% of the total value of your loan) and an annual MIP (charged monthly). Mortgage insurance protects the lender if the borrower defaults. If you have put at least 10% down at closing, you’ll be able to cancel MIP after 11 years of payment. If you have less than 10% down, you’ll pay MIP for the entire term length.

Property type

You can only use an FHA loan to buy a home you plan to live in as a primary residence. To finance a vacation or investment property, you’ll need to opt for a Conventional mortgage or another type of loan.

Pros and cons of Conventional loans

While it may be tougher to qualify for a Conventional loan, it may be the best option for borrowers who have stronger credit scores or more money for a down payment. Check out these pros and cons to see if it’s right for you.

Pros:

3% down payment possible

Depending on certain loan characteristics, you could pay as little as 3% down on a Conventional loan. That’s even slightly lower than with an FHA loan.

More property type options

You can use a Conventional mortgage to purchase a primary residence, a second home, or even an investment property. FHA loans are only for primary residences.

Less impact from private mortgage insurance

With Conventional loans, you are required to pay mortgage insurance if you’re putting down less than 20%. However, if you save up enough for a 20% down payment, mortgage insurance will be waived. Even if you need to pay private mortgage insurance for the beginning of the loan, that can eventually be dropped after you reach 22% of your home’s equity.

Cons:

Tougher qualification standards

There are more stringent requirements when it comes to getting approved for a Conventional loan than that of an FHA loan. You will need at least a 620 credit score to qualify for a Conventional loan.

[infographic external=”https://quote.cardinalfinancial.com/cfd_cardinalwebsite”][/infographic]

Which loan fits your needs?

Take the financial situations of two people, Hugo and Laila.

Hugo is trying his best to become a homeowner. However, after maxing out his credit cards and suffering a bankruptcy, his credit score is lower than he’d like it to be. He has a home in mind, but he’s only been able to save up about 4% for a down payment. An FHA loan may be right for Hugo. Since we’ve learned that FHA loans offer more flexible credit qualifying guidelines than other loan types, a lender may be able to offer Hugo a competitive interest rate.

Hugo may have a strong enough credit score to qualify for financing on an FHA loan, depending on the minimum qualifications required by his lender (the minimum required FICO score can vary from lender to lender, but it is generally lower than the score requirements of other loans, including Conventional).

Depending on his credit score, Hugo may be able to qualify for the low down payment of just 3.5% on his home’s purchase price. If his credit score is too low for that qualification, Hugo may still be eligible for an FHA loan, but his down payment may increase to 10%.

Now consider Laila: She’s spent the past few years building up strong credit, and has been able to save up a 15% down payment for a home in her price range.

Like roughly two-thirds of most homeowners, she’ll likely be eligible for a Conventional loan. While she may need to pay a little private mortgage insurance, it won’t be long at all before she can wipe that requirement away and focus on building equity in her new home.

What’s next?

Now you’re up to speed on the differences between FHA and Conventional loans. If you’re interested in exploring which option is best for you, the next step is to speak with a licensed mortgage loan originator. Contact us today to get started!

Did this breakdown help you learn the differences between FHA and Conventional loans? Do you have any more questions? Let us know on social media!

The post What Is the Difference Between FHA and Conventional Home Loans? appeared first on Cardinal Financial.