You have zeroed in on a house, arranged for a loan and are making the monthly payments. Those decisions were based on the market situation during that time. But it is highly possible that now after a year (or more?) the market has had several changes and perhaps your own financial standing has undergone a change. And it might be the time for a refinance.
The Federal Housing Administration or FHA has come to be known as the Bad Credit Home Loans. FHA, a government agency of US created as a part of the National Housing Act of 1934, FHA or the Federal Housing Administration is responsible for insuring mortgage loans offered by banks and lending institutions. It aims to improve housing standards and through insurance of loans, provide a home financing system.
With the introduction of FHA home loans, home owning has become relatively easy when compared to the past. The amount for down payment has gone down, interest rates have become more affordable and a better credit score is no longer imperative.
It is a great idea to avail these advantages over your existing loan through refinancing. And since FHA refinance is government backed, there is the availability of bad credit refinance options as well as the cost to refinance is less.
A point of importance is that refinancing can be done only on homes which are the primary residence of the borrower.
Two options for refinancing your home are:
- FHA cash out refinance
- FHA streamline finance
FHA Cash-Out Refinance
A great advantage of owning a home is that you can decide what to do with it in case you need some cash or if the value of the home has increased since the time of purchase. With the cash out refinance, the borrower gets the extra cash in hand. When applying for cash out refinance, it is better to build up equity. In this, the borrower applies for and gets a loan amounting more than what he currently owes.
With the fresh loan amount, he pays the earlier dues and gets the rest of the extra cash in hand which can be put to other uses.
Cash out refinance allows a borrower to borrow up to 85% of the current value of the home.
For example, you buy a house for $80,000, out of which you owe $65,000. After a few years, the value of the home increases to $95,000.With cash out refinances, you can borrow up to $80,750. After payment of the previous dues, you have up to $15,750 in cash, some of which would go for the closing costs of the new loan while the can be put to other uses such a tuition fees or the purchase of a car.
Also with the relaxed guidelines, it makes it easy for borrowers with lower credit scores and higher debt to income (DTI) ratios to refinance.
Advantages of FHA cash out refinance:
- Extra cash can be put to other uses.
- Interest rates may be lowered (usually but not always)
- Loan term may be changed
- Borrowers with bad credit scores and DTI qualify
FHA Streamline Refinance
Streamline refinance is named so because it has a streamlined procedure of lesser documentation with ease and speed.
Streamline refinance lowers the monthly expenses by lowering the payment. So if you are aiming to get some cash in hand, streamline refinance is not for you. Streamline finance works best if the borrower has a good financial standing with no significant debts and is looking to reduce the monthly expenses to save a little extra money.
While the streamline refinance is easy and hassle-free, the borrower must not be late on payments. Also, it is for mortgages which are already FHA insured.
For a streamline refinance to work, there should be a tangible benefit, i.e., there should be a minimum 5% reduction in the amount the borrower pays towards each month. It works with both fixed rate mortgages as well as adjustable mortgages.
Closing costs are typically not included in an FHA refinance, but it is up to the lenders who may absorb the closing costs at the expense of a slightly higher interest rate.
Advantages of FHA streamline refinance:
- No home appraisal
- No credit score check
- No income verification
With The FHA refinance, homeowners can make amends into their existing plan to achieve lower interest rates, lower credit score requirements and/or getting extra cash.
Depending on the need and kind of loan, the cash-out or the streamline refinance can be made use of.
Ready to get started with a lender? Click the link below and within minutes you’ll be matched with a lender who can assist you with your bad credit refinance. It’s quick and easy and only takes a few minutes to get started. Click the link below to find out more on how you can refinance your home, even with bad credit. Don’t wait you could save hundreds on your interest rate by refinancing your mortgage.