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.

But why would someone want to take on someone else’s mortgage? Well, the major benefit is that a buyer can take advantage of financing with a better interest rate if rates are higher than when the seller originally bought the home. An assumable mortgage can be a smart money move, but it’s not always the best option, particularly because not all mortgages are assumable.

Here are the basics both buyers and sellers need to know:
FHA Loans

What is an assumable mortgage?

An assumable mortgage allows a buyer to take over (or “assume”) the seller’s home loan. The buyer takes over the loan’s rate, repayment period, current principal balance, and any other terms, rather than getting a new mortgage.

The buyer will need approval from the lender who funded the original mortgage. Assuming the buyer is approved and the paperwork is processed completely, the buyer agrees to make all future payments on the loan, and the seller is released from any future liability.

An assumable mortgage allows a buyer to take over (or “assume”) the seller’s home loan, including the interest rate, repayment period, principal, and other loan terms.

What are the advantages?

For buyers

If the terms of the seller’s existing mortgage are more attractive than what’s currently available in the market, an assumable mortgage may be right for you.

Say the seller bought their home back when interest rates were around three percent. If rates have risen to six or seven percent since then, a buyer could assume the seller’s mortgage and potentially save thousands of dollars in interest payments and closing costs.

For sellers

It may sweeten the pot for buyers if your home comes with an assumable mortgage, especially if rates are much higher than when you bought the home. You might also have more negotiating power on price because of the deal the buyer would get from the assumption.

What are the disadvantages?

For buyers

Since an assumable mortgage only applies to the balance remaining on the original loan, you’ll need to either pay upfront or take out a second home loan for the amount of equity the seller has built up in the home.

You’ll also need to qualify for the loan under the original loan’s lender. If that lender doesn’t approve you, you won’t be able to take over the mortgage.

For sellers

Sellers could encounter liability issues if they’re not cleared from responsibility for the loan.

Make sure your lender can release you from liability before you allow someone to take over your mortgage. If you remain tied to the mortgage and the buyer defaults on the assumed loan, you don’t want to be on the hook for the payments or suffer a hit to your credit!

Are all mortgages assumable?

Typically, home loans that are guaranteed or insured by the federal government are assumable, including:

• FHA loans, which are insured by the Federal Housing Administration
• USDA loans, which are guaranteed by the Department of Agriculture
• VA loans, which are guaranteed by the Department of Veterans Affairs

Most Conventional loans aren’t assumable because they contain “due-on-sale” clauses that require that the loan’s balance be paid off when the property moves from seller to buyer.

How does the process work?

The lender who funded the original mortgage must approve the new buyer before it will sign off on the assumption. The lender checks the buyer’s credit score, credit history, and income as if they were the one applying for the original loan.

If the buyer is approved and the lender approves the transfer, the new buyer can close on the home and start preparing to move in.

What about costs?

There are fewer closing costs involved when a buyer assumes a mortgage. The FHA, VA, and USDA impose limits on assumption-related fees to help keep these home loans affordable.

The FHA and VA won’t require an appraisal on an assumable mortgage, but the VA does recommend an appraisal be completed during the deal. The USDA will want to verify that the property meets certain requirements before signing off on the assumable mortgage.

Still, the buyer may need to come up with a substantial down payment, especially if the seller has built up a lot of equity in the home.

VA Loans

What should I know about VA assumable mortgages?

Anyone can assume a VA loan, even those who aren’t a service member or served in the military.
However, the seller should know that with a VA loan, the government guarantees it will repay part of the balance if the borrower defaults. The VA calls this the borrower’s “entitlement.” Depending on the loan amount, the original borrower’s entitlement may remain in the home with the assumed mortgage, even after the sale.

If this happens, the seller may not have enough entitlement remaining to qualify for another VA loan to buy another home. Selling to a veteran or a fellow service member may be a better option: This way, the buyer can swap their entitlement for the seller’s.

What would disqualify me from an assumption?

If the buyer doesn’t have strong enough credit for the assumable loan, the lender won’t sign off on the deal. The buyer must prove that they can make the monthly payments. The seller must also show that they have been keeping up with their payments in order to transfer the property.

Can I assume a mortgage from a family member?

Not all assumptions are the result of home sales. In the cases of divorce or death, the spouse who remains in the home, or the heir, will need to prove they can make the monthly payments and meet the lender’s eligibility requirements before they can assume the mortgage.

Is it right for me?

An assumable mortgage may seem like an attractive option when interest rates are high because it could help you lock in a lower rate and drastically lower the cost of your home. However, this unconventional option is not for everyone.

Learn more about current interest rates and what home loan is best for your unique scenario by speaking one-on-one with a loan originator.

What were some of your key takeaways on this topic? Keep the conversation going on Facebook or Twitter!

The post Assumable Mortgage: What Buyers and Sellers Should Know appeared first on Cardinal Financial.