Can I Switch To A Conventional Loan
Yes, you can, so long as you meet the standards for approval of a conventional loan. These typically include a minimum credit score of 620 and a maximum debt-to-income ratio of 43 percent. There are other standard requirements involved, too, including proof of your income and ability to repay the loan.
Its Better To Refinance Sooner Rather Than Later
Its never too early to think about refinancing your home loan.
There is no minimum time wait. A mortgage is a contract. As soon as you can get a better deal, you should terminate the contract and take that better deal, says Realtor and real estate attorney Bruce Ailion.
Closing attorney Chuck Biskobing says there are no major risks to refinancing within a year or so of purchasing.
Ive seen people refinance three times in a year to follow falling interest rates, says Biskobing.
Say you want to apply the money saved each month back to the loan in the form of accelerated payments toward the principal, he says. If so, you will almost certainly pay off the new loan faster than the old loan. And youre not adding enough time on the loan to really matter.
In other words, youre not resetting your loan term by much if youre just six or eight months into the mortgage.
But if youre much further into your loan say five to 10 years resetting to a new 30-year mortgage may not pay off.
To find out if a refi is worth it based on your remaining term, try this refinance calculator.
Learn If Refinancing Your Fha Loan Is Right For You
Many people can benefit from refinancing their FHA loans. In the long run, you can usually save money. If you are looking to remodel your home to increase its value, or you want to pay off high-interest debt, refinancing can get you that extra cash you need. With the many options, it is wise to speak with a loan officer.Reach out to us, and we will help you decide if refinancing your FHA loan is right for you.
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Check Your Credit Score
Your credit score is a major factor in whether you qualify for a refinance loan and the interest rate youre offered. People with higher scores typically have an easier time getting a loan and pay lower rates. You can request a free copy of your credit report from each of the three major credit bureaus Equifax, Experian, and TransUnion once per year using AnnualCreditReport.com.
When you receive your report, look carefully for any errors like incorrect balances, or accounts listed as past due that are actually current. If you find a mistake, you can dispute the information with the credit bureau that issued the report and have it corrected. This may boost your score.
How Do I Convert An Fha Loan To A Conventional Loan
To convert an FHA loan to a conventional home loan, you will need to refinance your current mortgage. The FHA must approve the refinance, even though you are moving to a non-FHA-insured lender. The process is remarkably similar to a traditional refinance, although there are some additional considerations.
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The Conventional Loan Refinance
Many borrowers like to get an FHA loan for their purchase loan because of its flexible guidelines and low down payment requirements and then refinance into a conventional loan down the road. This gives borrowers the chance to purchase a home sooner while still having the option to refinance into a conventional loan in the future.
Conventional lenders typically like you to have at least six payments made on your mortgage before you can apply for a conventional loan refinance. In order to qualify for a conventional loan, you need:
- 680 credit score
- Max 95% LTV for a rate/term refinance
- Max 80% LTV for a cash-out refinance
- On time mortgage payments
The main benefit of refinancing into a conventional loan is the lack of mortgage insurance. If you have at least 20% equity in the home, you wont have to pay any mortgage insurance. If you have an LTV higher than 80%, you will pay PMI, but you can request cancellation once you owe less than 80% of the homes value. This can happen according to the amortization schedule if you make your payments on time. It can also happen faster if you make extra payments towards your principal and/or the home appreciates.
FHA loans dont allow cancellation of mortgage insurance. You pay it for the life of the loan, so its something to consider when you look at your options for refinancing your FHA loan into either another FHA loan or a conventional loan.
What If I Pay My Mortgage Late
- As noted, you get a generous grace period
- If still late after that youll be assessed a late fee, which can vary by lender
- Usually a small percentage of the monthly payment
- Only counts as a delinquency on your credit report if 30+ days late
If you play this pay at the last minute game each month, you could eventually get burned and wind up paying a mortgage late fee.
These fees can vary, but are often pretty steep. Were not talking a $20 late fee and a slap on the wrist.
Were talking a percentage of the mortgage payment, such as 5%. So if your monthly mortgage payment is $3,000 a month, thats $150 smackers.
And if you wait too long to make a payment, typically 30+ days beyond the due date, it could eventually be reported to the credit bureaus as a late payment, which will really hurt.
The result could be a substantial credit score ding, and greater difficulty obtaining subsequent mortgages in the future, a major issue if you need/want to refinance your home loan for some reason.
Or if you want to buy more real estate in the near future.
After all, lenders arent too fond of homeowners who dont make their mortgage payments on time.
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Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the points consumers care about most the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more so you can feel confident when you make decisions as a homebuyer and a homeowner.
When Mortgage Payments Start
The first mortgage payment is due one full month after the last day of the month in which the home purchase closed. Unlike rent, due on the first day of the month for that month, mortgage payments are paid in arrears, on the first day of the month but for the previous month.
Say a closing occurs on January 25. The closing costs will include the accrued interest until the end of January. The first full mortgage payment, which is for the month of February, is then due March 1.
As an example, lets assume you take an initial mortgage of $240,000, on a $300,000 purchase with a 20% down payment. Your monthly payment works out to $1,077.71 under a 30-year fixed-rate mortgage with a 3.5% interest rate. This calculation only includes principal and interest but does not include property taxes and insurance.
Your daily interest is $23.01. This is calculated by first multiplying the $240,000 loan by the 3.5% interest rate, then dividing by 365. If the mortgage closes on January 25, you owe $161.10 for the seven days of accrued interest for the remainder of the month. The next monthly payment, which is the full monthly payment of $1,077.71, is due on March 1 and covers the February mortgage payment.
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How Much Will It Cost To Complete The Refinancing
Depending on your lender and your loan terms, you may pay as little as a few hundred dollars or as much as 2% to 3% of the new loan value to complete a refinancing. If its going to cost you $3,000 to complete the refinance and it will take four years to recoup that money, it may not make sense for you.
Alternatively, if you can refinance and pay only $1,000, and have no plans to sell anytime soon, its very likely worth paying that $1,000 to save over time. In addition, some lenders allow you to roll your closing costs into the amount of the loan, so you dont have to come up with money out of pocket for closing costs.
Apply For Your Refinance Loan
When youve found the best offer, you can move on to the formal application. The lender you choose will give you instructions on how to apply for the loan. Just like when you bought your home, youll generally need to show documentation of your income and assets. This can include providing tax returns, W-2 forms, pay stubs, and bank account statements.
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You Can Save Money With Private Mortgage Insurance
Conventional mortgage insurance, more commonly referred to as private mortgage insurance , may be a cheaper alternative to FHA MIP, especially if you have a high credit score. The table below compares PMI with MIP for a $200,000 30-year, fixed-rate loan based on your homes equity.
| $0 | $133.33 |
The PMI premiums drop as your equity grows, but the MIP stays the same. A good credit score and increasing equity are a recipe for saving money with a conventional refinance.
An added bonus: Youll automatically end up with a conventional loan without PMI once youve paid your loan balance down to 78% of the original purchase price. You can also request the cancellation of your PMI if youve made extra payments to bring your loan balance down to 80% of the original value of your home.
When To Consider Refinancing A First
While a first-time homebuyer loan can help someone go from renter to owner, it doesnt necessarily have to be the only mortgage that somebody ever has for a first home. Sometimes, a homeowner with this type of loan might want to refinance it to improve their financial situation. Here are four reasons why a borrower might want to refinance a first-time homebuyer loan.
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How Do Fha Loans Work
While the federal government doesnt make FHA loans, it does insure them. That means if a borrower has trouble making mortgage payments and falls behind, the lender can file a claim with the FHA. After the lender forecloses on the buyers home, the FHA pays the lender the loans balance. Since lenders know they are likely to get paid no matter what, they are more willing to lend money to people who would otherwise be considered too risky for a home loan.
The FHAs guarantee does come at a cost, though, and its usually the borrower who pays the price. FHA loans typically have two forms of mortgage insurance. The first is an upfront mortgage insurance premium payment typically around 1.75% of the loans principal amount. You pay this amount at closing.
The second form of mortgage insurance is a monthly insurance payment, which can be anywhere from 0.45% to 1.25% of the initial principal. The monthly insurance payment usually remains for the life of the loan and can add several hundred dollars to a persons monthly mortgage payment.
Check Your Fha Cashout Loan Eligibility
Homeowners who dont have great credit but need to tap home equity are the best candidates for FHA cashout loans.
For those with good credit and at least 20% equity, a conventional cash out refinance or home equity loan might yield lower costs.
Current FHA refinance rates are low, leading to more homeowner eligibility for this program.
If youre interested in an FHA cashout refinance, be sure to shop around with a few lenders and find the best rate for your new loan.
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Should You Refinance Your Fha Loan
Many refinancing options require you to have owned the home for a set amount of timeoften upwards of a year or longer. The more on-time payments you can show on the home, the more likely you are to qualify.
The best FHA mortgage lenders are the ones that offer the fewest fees and most repayment terms. If you dont have many options to choose from, cant secure a lower interest rate than what youre paying now or you dont have a way of paying off your loan sooner, you may not want to refinance your FHA loan.
Instead, take some time to improve your credit score and build up equity in your home. That way, youll be ready to get a lower rate and potentially tap into more of that equity.
Types Of Fha Refinance Loans And Why To Refinance
Knowing you have the option to refinance an FHA loan, you may wonder if now is the right time. These are common reasons homeowners choose to refinance an FHA loan:
- Mortgage rates dropped recently
- The value of your home has gone up
- You may need the extra cash
- You would like to switch over to a conventional loan
- You could save money in the long run
The two most common types of FHA refinancing are FHA Streamline and FHA Cash-Out.
The one you choose will ultimately depend on your goal and why you are looking into refinancing your home.
If your primary purpose is to lower your current monthly payments or to shorten your loan term, then FHA Streamline may be the better option. If you need the extra cash, an FHA Cash-Out would be a reasonable choice.
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Can I Refinance Fha To A Conventional
Refinancing from an FHA loan to a conventional loan can be a good choice for borrowers who have improved their credit and grown equity in their home. You may be able to shorten your loan term, take advantage of lower interest rates and enjoy lower monthly payments by refinancing to a conventional loan.
Risks Of An Fha Refinance
- Closing costs. Like a regular mortgage, youre on the hook for closing costs when you refinance your home. These can include appraisal fees, underwriting fees, title services and other costs. You could be on the hook for 2% to 5% of your total outstanding loan, similar to the costs of closing on a traditional mortgage.
- More stringent requirements. If youre refinancing from an FHA loan into a conventional loan, you might have higher standards to meet. For instance, your debt-to-income ratio should be 50% or lessbut the lower your DTI overall, the better chance you have of getting the best terms. Youll also need at least a 680 credit score . If you move to another FHA loan, the requirements might not be as strict, but youll still need to prove your creditworthiness.
- Potentially higher payments. Refinancing doesnt guarantee lower payments. In fact, if you dont get a lower interest rate, you could face much higher payments than what youre paying now. Along with that, refinancing with a shorter term loan means higher monthly payments in order to pay off the mortgage faster. So if you cant afford the jump, refinancing might not work for you.
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How Much Cash Back Can I Get With Fha
The max amount of cash you can get using an FHA cashout refinance is dictated by your equity.
Remember, you must leave 20% equity in your home after the cashback is withdrawn. So, when thinking about the amount of cash you can take out, look at your total equity and subtract 20% plus closing costs to get an estimate.
Heres an example of how the FHA cashout calculation works:
| Current Home Value | |
| Max FHA Cash-Out | $33,000 |
In this example, the home is worth $220,000, and the homeowner only owes $140,000 on their mortgage. So they have $80K worth of equity.
However, 20% of the homes value must remain untouched.
- 20% of $220,000 is $44,000
- So $44K must be subtracted from their total $80K equity,
- This gives a max cash-out potential of $36,000
However, the homeowner also uses some of their cashout value to pay closing costs .
So they end up with a total of $33,000 cash back at closing quite a bit lower than the $80K of equity originally calculated.
Can You Refinance An Fha Loan After 6 Months
How Soon Can I Refinance An FHA Loan? Certain loans have waiting periods before you can refinance. For example, if youâre looking to do an FHA Streamline, 6 months must have passed since the due date of the first payment in order to close on the mortgage. You also have to have made six payments on the existing loan.
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Repeat Loan Approval Process
Another thing a refinance will cost you is time. You may already have a loan, but youll need to go through the application and loan approval process all over again for your new loan. That includes having your credit pulled, submitting certain documents and potentially having another appraisal performed on the home. A few documents youll likely need to provide include:
- Recent pay stubs
- Copy of your homeowners insurance policy
- W-2s, tax returns, 1099s
- A copy of your title insurance
Is your mortgage rate still over 3%?
Refinancing now could save you thousands over the life of your loan. Get started below to see how Rocket Mortgage can help.
