Conventional vs. FHA RefinancingBy
In today’s tough economy borrowers need all the savings they can get so comparing conventional and FHA refinancing options is a smart move. Now more than ever, homeowners who need to refinance like to compare traditional loan options to government mortgage programs. There are benefits to both a conventional and FHA mortgage, so the pros and cons come into play based on your needs and loan eligibility.
Compare Conventional and FHA Refinance Loans
The Federal Housing Administration provides a number of options for homeowners, from loans to refinancing. Refinancing a home can be an excellent way to reinvest in your property, and offers a number of different benefits. There are a number of key differences when it comes to conventional vs. FHA refinancing, and knowing these differences can help you tackle the prospect of refinancing your home a little more easily. Here, we’ll go over some of the basic information behind a conventional and FHA refinance, respectively, so that you can decide which is right for you.
HUD has extended FHA refinance guidelines to offer several options for homeowners. The first type of FHA refinance is the cash out refinance, which is typically chosen by home owners whose property has increased in value since they originally purchased it. Cash out refinancing enables the home owner to refinance an existing mortgage by taking out another mortgage for more than they currently owe. On the other hand, home owners also have the option of a streamlined refinance, which is called such because it enables the homeowner to rapidly reduce the interest rate on the current loan. This can usually even be done without getting an appraisal, cutting down on paperwork and saving you time and money.
One benefit of FHA refinancing is the streamline refinance option. With the FHA loan, borrowers get quick access to home refinancing if interest rates fall below the rate they locked into. The streamline refinance program enables borrowers to revise their terms without an appraisal and in most cases without income documentation. With the conventional loan there is no streamline mortgage refinance option, so borrowers would need to start the process all over again.
FHA mortgage refinance programs are only available to home owners who are using the property they wish to refinance as their principal residence. Conventional refinance loans have very strict guidelines and requirements, such as higher credit scores. Conventional refinancing can sometimes incur penalties if the refinancing is not done at the proper time, and thus sometimes people can get trapped into not being able to refinance when they want to. That said, one disadvantage of FHA refinancing compared to a conventional mortgage is that FHA insurance is not cancelled when the home owner reaches 22% equity, although some home owners are eligible for an FHA insurance refund.
Great Rates on FHA and Conventional Refinance Loans
Conventional vs. FHA refinancing requires some careful consideration, and there are certainly advantages to each. Years ago, FHA mortgage rates were a bit higher, but these days conforming and FHA rates are typically the same. Today, most lenders offer the FHA mortgage product because it is available to those with poor credit scores and is more flexible than a conventional mortgage.
One thing to keep in mind though is that HUD has promised increased fees and mortgage insurance premiums for FHA loans, so refinancing with FHA could lose some luster if the insurance hike swallows your savings. Taking these factors into account can help you get the best type of mortgage for your family, and get you the home you want.