The Benefits of Refinancing using the FHA Program

With the changing interest rates in today’s market, many home owners are considering refinancing their loans, especially those that are based upon variable rates. For some home owners, the Federal Housing Administration (FHA) loan program provides certain advantages.

The role of the FHA: working with average to low-income home buyers

The Federal Housing Administration is a department under the Housing and Urban Development department of the US government. It is part of their mission to assist people who want to buy a home to achieve that dream. To that end, they have set up guidelines, limits and regulations specific to purchasing a range of housing options within the realm of most average to lower income levels.

The FHA does not make loans directly. They simply guarantee the loan. In other words, if you meet their lending criteria, they will give a guarantee to a lender that the loan will be backed by federal funds in case you default. Of course, should you default, you will lose your home, just like any other type of mortgage. Keep in mind that this is a hand up, not a hand out, gift or grant.

The benefits of FHA refinancing

Many home owners with conventional loans are looking to refinance into a FHA program. Indeed, there are several advantages with FHA refinancing:

• Less stringent qualifications for income and credit scores: With a FHA refinancing loan, you are more likely to qualify for the refinance, even if you have a less than stellar credit score or income. Because the FHA guarantees a portion of your loan, it takes the risk away from the lender, meaning they are more likely to accept your refinancing loan.

• Potentially lower interest rates and points: Some FHA loans offer interest rates that are competitive – if not better – than the current rates for conventional loans. Since the federal government backs FHA loans, this reduces the risk involved for the lender. Therefore, the lender can reduce the long-term rates and charge fewer points – saving you a significant amount of money in the long-term. Keep in mind that it is still important to compare the interest rates offered by a FHA loan against conventional loans.

• Refinance even with late mortgage payments: Whereas lenders may be weary of providing you with a traditional refinanced loan if you have a poor payment history, the FHA program can help you refinance – even if you have late mortgage payments.

• FHA support in times of financial difficulty: Unlike the traditional lender who does not offer flexibility during times of financial difficulty, the FHA does offer support. If you experience temporary financial strains, the FHA can help you through that crisis, possibly avoiding a foreclosure of loan default on your home.

• Freedom from pre-payment penalties – If you decide to pay your loan off early, you will not be subject to pre-payment penalties and fees that are common with conventional loans.

• Reduced mortgage insurance premiums – If your home is in a higher loan-to-value situation, refinancing with the FHA program can reduce your monthly insurance premiums, as your loan is partially guaranteed by the federal government.