FHA Loans: Refinancing FHA Loan To Conventional Loan
FHA Loans are the most popular mortgage loans today. FHA Loans are not just for mortgage borrower’s with bad credit. There are times where mortgage loan borrowers with great credit and stable income with job longevity needs to go with a FHA Loan instead of Conventional Loan due to the fact that they may have higher debt to income ratios, recent bankruptcy, recent foreclosure, recent short sale, recent deed in lieu of foreclosure, or other factors that affect them in qualifying for a conventional loan. The Federal Housing Administration, FHA, is a subsidiary of the United States Department of Housing and Urban Development ( HUD ), are in charge of all the rules and regulations of FHA Loans. FHA does not originate nor fund FHA Loans. FHA’s role is to insure FHA Loans that are originated and funded by FHA approved mortgage lenders. FHA approved mortgage lenders are private lenders such as banks and mortgage bankers who are HUD approved and meet all standards set by FHA. What happens is that the FHA approved mortgage lender will originate, process, underwrite, and fund FHA Loans as long as the borrower meets all of FHA lending guidelines. Once the FHA approved mortgage lender funds the FHA Loan, FHA will insure the FHA approved mortgage lender in the event the FHA mortgage loan borrower defaults on his or her FHA Loan. In order for FHA to insure the FHA approved mortgage lender against borrower’s default, the FHA Loan needs to have met all of the guidelines set by FHA when the FHA Loan was originated and funded.
FHA Mortgage Insurance Premium
The biggest negative factor with FHA Loans is the pricey FHA mortgage insurance premium. FHA mortgage insurance premium is mandatory for all 30 year fixed rate FHA Loans regardless of the loan to value. There are two types of FHA mortgage insurance premiums. The upfront FHA mortgage insurance premium of 1.75% of the mortgage balance is a one time charge that all FHA mortgage loan borrowers have to pay but this cost can be rolled into the balance of the mortgage loan. The second FHA mortgage insurance premium that FHA mortgage loan borrowers need to pay is the annual FHA mortgage insurance premium which is 0.85% of the mortgage balance. The annual FHA mortgage insurance premium is escrowed and is part of the borrower’s monthly mortgage payment and the only way it can be canceled is by paying off the FHA Loan or by Refinancing FHA Loan To Conventional Loan. The main reason most homeowners consider refinancing FHA Loan To Conventional Loan is mainly due to eliminate the pricey FHA Mortgage Insurance Premium.
How Do I Go About Refinancing FHA Loan To Conventional Loan
If you purchased your home with a FHA Loan and you can now qualify for a conventional loan, you can consider whether it will benefit you by refinancing FHA Loan To Conventional Loan. One of the most important factors with conventional loans is that they are credit sensitive unlike FHA Loans. For example, for you to get the best conventional loan mortgage rates, you need a 740 FICO credit score with at least 20% equity in your home. The lower your credit scores, the higher your conventional mortgage rates will be. The less equity your have, the higher your conventional rate. Any conventional loan with less than 20% equity will require private mortgage insurance. However, unlike FHA Loans, if your home appreciates in value and you have at least 20% or more in equity due to appreciation of your home, conventional private mortgage insurance can be canceled. Why refinance FHA Loan To Conventional Loan if you still have to pay for private mortgage insurance if you have less than 20% equity in your home? The reason is that private mortgage insurance on conventional loans are a fraction of the 0.85% annual FHA mortgage insurance premium and conventional private mortgage insurance can be canceled once you have 20% equity in your home whereas with FHA annual mortgage insurance premium, the FHA annual mortgage insurance cannot be canceled no matter how much your equity in your home is.
Conventional Mortgage Rates Versus FHA Mortgage Rates
FHA mortgage rates are substantially lower than conventional mortgage rates because FHA Loans are insured by the Federal Housing Administration against borrower’s default. Although conventional mortgage rates may be higher than FHA mortgage rates, it may be beneficial to you to refinance FHA Loan To Conventional Loan due to the high FHA annual mortgage insurance premium. Your mortgage loan officer will go over a full comparison and analysis to see whether Refinancing FHA Loan To Conventional Loan will be beneficial to you and how much money you can save over the term of your mortgage loan. If you are considering refinancing FHA Loan To Conventional Loan, you should contact us at 262-716-8151 or email us at GustanCho@Outlook.com and we can run a free analysis for you. If you have lower credit scores, we can advice you on maximizing your credit scores prior to refinancing FHA Loan To Conventional Loan so you can get the best conventional mortgage rates.
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