How To Refinance A Reverse Mortgage
The process of refinancing a reverse mortgage is similar to refinancing a traditional mortgage. Here are the possible steps involved:
Contact your existing reverse mortgage lender or another lender to get interest rate quotes.
You want to determine how your reverse mortgage loan balance currently compares to the market value of your house. You can then compare the interest rate and accumulation terms of your existing reverse mortgage to what your rate and closing costs would be if you refinance, Fleysher said. If the benefits are evident, you can proceed as you would with any other refinance.
Submit a new reverse mortgage application with your chosen lender.
A financial assessment will be conducted to make sure youll be able to afford ongoing expenses like property taxes, insurance, and home maintenance, DeMarkey said.
Meet with a HUD-approved reverse mortgage counselor.
HUD requires all HECM borrowers to receive counseling prior to taking out a reverse mortgage. Your counselor will make sure you understand the loan terms and obligations.
Have your home appraised to determine its value.
Your reverse mortgage lender will order the appraisal, and you will pay for it as part of your closing costs. The appraisal and loan package will be sent to an underwriter for review and approval, DeMarkey said.
Sign your closing documents.
Sign closing documents with a title officer or attorney after your loan is approved.
How The Fha Streamline Works
For the most part, the FHA Streamline works like any other refinance product. You take out a new FHA mortgage typically with a better interest rate and lower monthly payment which replaces your existing loan. Your current mortgage must be FHAbacked to use this program.
The FHA Streamline is available as a fixedrate or adjustablerate mortgage it comes with a 15 or 30year term and theres no FHA prepayment penalty to worry about.
Note, the FHA Streamline cannot be used to refinance a 30year mortgage into a 15year mortgage.
It can, however, be used to extend a 15year loan into a 30year loan. Doing this lowers monthly payments even further for homeowners. But it also stretches out your interest payments, which means you could pay more with the longer term.
Another big plus is that rates for the FHA Streamline Refinance are the same as FHA home purchase rates. Theres no penalty for being underwater, or for having very little equity.
Fha Cash Out Refinance Lenders
We mentioned earlier that you may find each lender could have different requirements when it comes to things like credit score, job history, and more. Therefore, there really is not a single lender that we can say is the best lender for FHA cash out refinances.
The lenders listed below are the most popular lenders, but they may not be the best fit for what you need. Therefore, complete our request an FHA cash out refinance quote form and we will match you with a lender that is the best fit for you.
Here are some popular FHA lenders:
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S To Getting A Rehab Loan
Here is a rundown of what it would look like if you got a rehab loan:
Know Your Breakeven Point
An important calculation in the decision to refinance is the breakeven point: the point at which the costs of refinancing have been covered by your monthly savings. After that point, your monthly savings are completely yours. For example, if your refinance costs you $2,000 and you are saving $100 per month over your previous loan, it will take 20 months to recoup your costs. If you intend to move or sell your home within two years, then a refinance under this scenario may not make sense.
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Fha Streamline Refinance Borrower Requirements
When it comes to borrower requirements, FHA is pretty lenient.
- Income verification and employment verification are not required when you use the noncredit qualifying option
- The lender does not have to verify your credit score or credit report
- A home appraisal is not required. Instead, lenders can use the home value from your original loan to measure your loantovalue ratio
In short, the FHA Streamline is one of the most generous refinance options available.
Because there are so few documents required, an FHA Streamline loan may close faster than a traditional refinance.
And, youre likely to save money on closing costs because you wont have to pay for a new home appraisal.
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What You Should Know Before Refinancing Again
The most important thing to remember about refinancing is that it isnt completely free. Just like with your first mortgage, youll need to cover closing costs and usually an appraisal fee when refinancing your home. Typically, refinancing closing costs run between 3% and 6% of the total loan amount.
Because of this, youll need to make sure youll eventually reach the breakeven point or the point at which your savings outweigh the money you paid to refinance the loan.
Aside from the costs, youll also want to consider:
- The time it takes: Refinancing requires a lot of paperwork and documentation, so be prepared for this before making your move.
- The current state of the mortgage market: Qualifying standards, rates, and other facets of the mortgage market are always in flux. Make sure its the right time to achieve your goals.
- Any prepayment penalties on your current loan: Some lenders charge a fee if you pay off your loan too soon. Factor this penalty in if your current lender would charge this.
- Your financial situation and credit: Your debts, income, credit score, and more will all play a role in your ability to qualify for a refinance . A refinance will also most likely require a hard credit pull, which could lower your credit score.
If youre looking to do a cash-out refinance, youll also need to have a good amount of equity in your home. If youve already done a cash-out in the past, then you might have less than you think.
To calculate the amount of equity you have:
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What Is The Fha Streamline Program
FHA streamline refinance is a program that allows homeowners with FHA-backed mortgages to refinance with less time, hassle and paperwork. With a streamline refinance, you dont need to go through the FHA appraisal process again, since the FHA has already valued the property.
There are two types of FHA streamline refinance: credit qualifying and non-credit qualifying. A credit-qualifying streamline refinance requires your lender to perform a credit check, calculate your debt-to-income ratio and assess your ability to continue paying your mortgage.
These requirements dont apply to non-credit qualifying FHA streamline refinances, so why would you opt for the more labor-intensive option? Specific circumstances, like needing to remove a borrower from the mortgage, require a credit qualifying streamline FHA refinance. Theres a plus, though: The added documentation required with a credit-qualifying streamline refinance could result in a lower interest rate than you would get with the non-credit qualifying version.
The streamline program is only available to homeowners who already have FHA loans, but that doesnt mean you have to refinance with your existing lender. FHA loan requirements and fees may vary by lender. Comparing quotes from several different FHA streamline refinance lenders will help you find the best deal.
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How Soon Can You Refinance A Conventional Loan
Conventional loans are ones not backed by the government. So FHA, VA and USDA loans are not conventional. But loans from private lenders or Fannie Mae or Freddie Mac are.
Conventional loans have few rules about refinancing. Technically, you can walk out of closing one refinance, drive home and go straight online to apply for a new one.
The exception to this is if youve done a cash-out refinance. After one of those, there is a six-month waiting period before you can apply again. In mortgage industry jargon, such a waiting time is called a seasoning period.
Alternatives To Refinancing To A Conventional Loan
If all of that seems like too much or youre unable to refinance to a conventional loan an FHA Streamline Refinance could be a good alternative option. An FHA Streamline Refinance can allow you to enjoy some of the benefits of refinancing without changing to a conventional loan. You may still be able to lower your interest rate and reduce your monthly payment, but you wont be able to get rid of mortgage insurance and youll still need to pay closing costs. This type of refinance comes with another benefit: a speedier, more simplified process. Thats because it typically requires less documentation and may not require an appraisal.
While the lender may consider fewer credit factors with an FHA Streamline, it still performs a credit check. If you dont meet minimum credit score requirements for an FHA Streamline or to refinance FHA to conventional, you may want to consider learning how to refinance with bad credit.
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The Bottom Line: Your Home Is A Financial Resource That You Can Leverage To Meet Your Financial Needs
If it makes financial sense to do so, refinancing your home more than once can help you manage your monthly budget, take advantage of investment opportunities or pay a major life expense. If youre not sure, talk to your financial advisor to see if it makes sense for you.
Get approved to refinance.
Taking A Lower Interest Rate
Have interest rates lowered since you got your refinance? You may want to refinance again to take advantage. You can almost always save money if youre able to lower your interest rate without changing the term of your loan.
Just a small change in your interest rate can save you hundreds, or even thousands, of dollars. For example, lets say you currently have a 20-year mortgage loan with $150,000 left on your principal and you pay an interest rate of 4.5%.
You have the chance to refinance your loan with the same terms and an interest rate of 4% APR. If you dont refinance, you pay $77,753.84 in interest by the time your loan matures. If you take the refinance, you pay $68,152.95 total in interest. Lowering your interest rate just 0.5% means you’ll save over $9,601 in interest.
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A Distinct Downside: Mortgage Insurance Premiums
One downside of an FHA refinance loan is that all FHA loans require mortgage insurance, meaning a costly mortgage insurance premium paid by borrowers. By contrast, conventional loans only require insurance, known as private mortgage insurance , if the down payment is less than 20 percent of the propertys purchase.
Each FHA loan requires both an upfront premium of 1.75 percent of the loan amount plus an annual premium of 0.45 percent to 1.05 percent. Exactly when these costs lapse is determined by the term of the loan, amount borrowed and the loan-to-value ratio.
These premiums can add significantly to the costs of the loan and your monthly payment. If youre already paying PMI on your mortgage, this might not be as big a deal, depending on the relative costs, because youre replacing one premium with another. But if you put 20 percent down on your existing mortgage and thus pay no insurance premiums or youve built up enough equity to get your lender to cease to require these premiums this FHA requirement could give you pause and prompt you to consider other financing avenues to avoid this cost.
Dhara Singh is a mortgage reporter for Bankrate. She is a former data analyst turned financial journalist who previously worked at Yahoo Finance, CNET, Cashay.com and JPMorgan Chase covering the housing and retirement beats.
Benefits Of Refinancing An Fha Loan To A Conventional Loan
One of the main advantages of refinancing from an FHA loan to a conventional loan is the ability to eliminate FHA mortgage insurance premiums .
With a conventional loan, once your balance reaches 80 percent of your homes original value, you can cancel private mortgage insurance . This option doesnt exist in most cases for FHA loans, so youll continue to pay premiums unless you refinance to another type of loan.
If you refinance your FHA loan to a conventional loan and still have to pay mortgage insurance due to your equity level, you may find that the premium costs more now than what it cost for your FHA loan. Refinancing, however, may have lowered your monthly payments enough to compensate, and the tradeoff is that youll be able to cancel PMI, eventually, on the conventional loan.
- Conventional PMI: 0.58 percent to 1.85 percent, according to averages from the Urban Institute
- FHA MIP: 0.75 percent upfront and 0.45 percent to 1.05 percent yearly
Another benefit to refinancing your FHA loan to a conventional loan is that conventional mortgages allow you to tap up to 80 percent of your homes equity through a cash-out refinance without paying mortgage insurance. Conventional loans also have higher loan limits, so you can take out a larger amount compared to an FHA loan.
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Jumbo Loan Refinance Rules
A jumbo loan is a mortgage that is greater than the lending limits set by Fannie Mae and Freddie Mac. In 2021, the maximum loan amount for a single-family home is $548,250 for most areas and up to $822,375 for high-cost-of-living areas.
Jumbo loan refinancing has similar refinance rules as conventional mortgages. Theres no set amount of time you must wait before you can refinance. Because they arent backed by Fannie Mae or Freddie Mac, these loans are subject to each lenders requirements and may have stricter underwriting requirements than conventional mortgages.
Refinancing A Government Backed Mortgage
Government-insured mortgages have stricter and more specific requirements for refinancing than mortgages from private lenders. If you have an FHA loan, you could go through the FHA streamline refinance program to lower your interest rate. For this option, you must wait seven months from the closing date of your mortgage and six months from the due date of your first payment.
VA loans have similar requirements through the VA streamline refinance program. Youll have to wait until seven months from your first mortgage payment or until the date of your sixth mortgage payment, whichever date is later. For a cash-out refinance for your VA loan, you have to wait seven months from the closing date of your original mortgage.
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About The Fha Streamline Refinance Program
Maybe you found the FHA Streamline Refinance on your own, and youre wondering if its a good idea.
Or maybe you were contacted by a lender offering ultralow refinance rates and big monthly savings.
In this case, you may wonder if the FHA Streamline program is a scam.
While it might sound too good to be true, the FHA Streamline Refinance is a perfectly legit refinance loan backed by the Federal Housing Administration. It can offer a simplified, lowdoc application process and belowmarket rates.
But you have to be a qualified homeowner with a current FHA home loan to use this program.
And youll want to check all your options before using an FHA Streamline because theres a chance another refinance program might help you save more.
Heres how you can evaluate the FHA Streamline program and figure out if its the right refinance loan for you.
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Fha Cash Out Refinance Guidelines 2022 How To Qualify
Qualifying for an FHA cash out refinance is nearly the same as qualifying for any FHA loan. However, there are a few slight modifications which only apply to cash out refinances. These are the minimum requirements to qualify for an FHA cash out refinance:
- Employed for a minimum of 2 years
- Minimum credit score of 500
- No recent bankruptcies
- Maximum debt to income ratio of 56%
- Maximum total loan amount of 80% loan to value
- Need to have made at least 6 monthly payments on existing mortgage before applying
- Cannot have any late mortgage payments
These are just the basic requirements. We can help you to determine exactly how much you can qualify for and provide a rate quote without running your credit.
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Should I Get A Loan Through A Mortgage Company Or Bank
Before buying a home, you will need to choose who youre going to work with through the homebuying process. This starts with your real estate agent, though your mortgage loan officer can be almost as important. They can advise you on refinancing or home equity loans if you already own a home. A financial advisor could also help you adjust your financial plan to meet your home loan needs. In either case, once you have a loan expert you can trust, you will likely rely on that person for years, regardless of the company they work for.