FHA Loans Gain
Popularity
The
Federal Housing Administration (FHA) program first
began in 1934 in an effort to encourage home ownership
despite the economic difficulties of the era. The program enables
consumers who may not qualify for a standard loan to obtain the
financing they need to purchase or refinance their home.
Greater
Flexibility
FHA loans differ from
typical loan programs in
that they are insured by the Federal Housing Administration which is
part of the Department of Housing and Urban Development (HUD). Because
this insurance reduces the lender's risk on the loan, lenders have
greater flexibility with regard to approving your loan.
For
example, FHA loans are not
credit-score driven, so you may be able to refinance and gain
access to your home equity despite
having had credit problems or even a bankruptcy in the past.
An
FHA refinance loan can also
provide added flexibility when it comes to your closing costs. Many of
the closing costs can be incorporated into the loan amount,
essentially using your home equity as cash
enabling you to refinance with the
minimal amount of cost coming out of your pocket.
What
if you do not have a lot of home equity available? FHA refinance loans can help you
as well. In October 2005, HUD issued Mortgagee Letter
05-43 which extended the FHA guidelines to
allow rate and term and cash out refinances up to
95% of the appraised value in certain circumstances.
Another
great refinance advantage
of FHA is that they do
not care about combined-loan-to-value
(CLTV) in the case of a full qualifying refinance. As long
as the first mortgage loan-to-value (LTV)
is within FHA limits and the
existing second lender will subordinate behind the new first mortgage,
the CLTV does not matter. This allows you the opportunity to refinance your
existing loan with an FHA insured lender
while gaining access to your home equity for the cash
proceeds you may need.
Great
Rates and Low Monthly Mortgage Insurance
A
distinct
advantage of an FHA insured loan, as compared
to other loans, is great
interest rates and lower monthly mortgage insurance (MI). Depending on
the lender, standard FHA loan interest rates
are usually better than a conforming 30-year fixed loan. Also, the
mortgage insurance premium on a FHA loan can be as low
as .05% per year. Compared to a conforming loan, this is
substantially less expensive than most of the high LTV conventional
programs in which the mortgage insurance and premium could be as high
as 2.87% per year.
Like
any other loan program, an FHA refinance does have
some limitations. The FHA has counselors
available that can help you with deciding what your refinance options
may be with an FHA insured lender.
As with any refinance loan, take the time
to do your research. By spending the time you may discover you qualify
for a program such as the FHA refinance and save
you and your family a significant amount of money over the years.
Sources:
Federal Housing Authority.com
Official website of the FHA
