What Documents Do I Need For An Fha Streamline Refinance
Even though FHA streamline refinances have minimal documentation required for the loan application, that doesnt mean theres no documentation. Below is a list of things youll likely need for your refinance application, including your:
- Current mortgage statement
- Current FHA loans mortgage note, which shows your current interest rate and loan type
- Final settlement statement or Deed of Trust with the FHA case number of your current loan
- Employer HR departments contact information
- Two months of bank statements that show you have enough funds to pay for any out-of-pocket costs
- Homeowners insurance agents contact information to obtain current proof of insurance
Also, make your next months mortgage payment as soon as possible. This allows your lender to obtain proof that your FHA mortgage is current. Your lender may require more or less than the items listed above.
Is It Worth Refinancing For 1 Percent
Refinancing to save 1 percent is often worth it. One percentage point is a significant rate drop, and it should generate meaningful monthly savings in most cases.
For example, dropping your rate 1percent from 3.75% to 2.75% could save you $250 per month on a $250,000loan. Thats nearly a 20% reduction in your monthly mortgage payment.
Those monthly savings can be put toward daily living expenses, emergency funds, investments, or paid back into your mortgage to pay the loan off early and save you even more in interest.
Refinancing for a 1percent lower rate
| Loan Balance | |
| Worth It? | Yes, if you keep the loan ~2 years or longer |
Keep in mind, breaking even with your closing costs isnt the only way to determine if a refinance is worth it.
A homeowner who plans to move or refinance again before the break-even point might opt for a no-closing-cost refinance.
Todays Fha Refinance Rates
Mortgage interest rates are low across the board. That includes rates for FHA Streamline Refinancing.
Even though the FHA Streamline doesnt require credit approval, your rates will still vary from one lender to the next. So it pays to shop around for the best deal.
Compare FHA Streamline rates from a minimum of 3 lenders to make sure youre getting the lowest rate and monthly payment on your new loan.
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What Iis A Va Loan
Similar to FHA loans, VA loans are government-backed mortgages that are partially guaranteed by the U.S. Department of Veterans Affairs . They are issued by independent financial institutions, which are able to offer more favorable terms since the VA guarantees a portion of the funds.
VA loans are specifically designed to help service members, veterans and eligible surviving spouses become homeowners. They can be used to purchase a property as a primary residence or refinance an existing mortgage.
Refi Fha To Conventional: What You Need To Know
- Refi FHA to Conventional: What You Need to Know
If you have an FHA loan, now may be a great time to refinance to a conventional loan.
Mortgage rates are as low as theyve ever been. But theres no guarantee theyll stay this low. They could soon creep upward.
Consider a refi FHA to conventional if youre ready to lower your interest rate and get rid of mortgage insurance.
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Help Pay Your Close Costs With Sellers Assist/sellers Insurance
There is program known as seller assistance that helps buyers pay for a portion of closing costs. Also called seller concessions, sellers assist makes closing costs become a debit to the seller and a credit to the buyer at the closing table.
A seller assist is available with FHA, VA, USDA, and conventional mortgages, though they come with vastly different limits and requirements.
For an FHA loan, the max seller assist rate is 6%, while with a conventional loan it is normally 3%. Conventional loans with a down payment of 10% or more can qualify for a 6% seller assist rate.
Seller assists can also be used to purchase mortgage discount points, which are useful for first time home buyers since the lower rate helps reduce their monthly payments.
Sellers assist cannot be used to finance down payments, but can potentially cover escrow, prepaid taxes, and homeowners insurance.
Does A Lower Rate Make Refinancing Worthwhile
Going from a higher interest rate to a lower one doesnt always make refinancing worthwhile.
You want to see how many months it will take before loan savings break even with your upfront closing costs. If youll stay in the home past the breakeven point, youll start seeing real savings.
After the breakeven point, your savings will continue to grow over the life of the loan.
You should also watch out for lenders that define savings as the difference between your new mortgage payment and your old one.
Look out for lenders that define savings as the difference between your new payment and your old one. Its possible to lower your monthly payment but increase your longterm cost.
Its not that easy to measure your savings. Refinancing starts your mortgage loan over, so its possible to lower your monthly mortgage payments but actually increase your overall cost.
This can happen because youre spreading the loan balance and interest payments over a new 30year term.
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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.
Can You Refinance An Fha Loan
In order to refinance an FHA loan, you have to qualify for either the FHA loan or another loan type. Well go over some of whats necessary to qualify for individual loan types a bit later on, but for now, we can speak in general terms.
Your credit score and history affect whether you can qualify. In addition to the score itself, your payment history and previous negative marks like bankruptcy or a forbearance affect who can qualify and when. These latter items are a little more complicated and we would recommend speaking with a Home Loan Expert.
In addition, if youre looking to do an FHA Streamline, going from one FHA loan to another for the purpose of changing your term, lowering your rate or both, theres often a waiting period.
Finally, theres a minimum equity amount thats required in order to refinance in many cases. Whether this is the case depends on the type and purpose of the loan.
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What Is A Debt
A debt-to-income ratio is simply a percentage that is calculated by dividing your total debt obligations by your gross income. The FHA requires borrowers to have a DTI ratio of 43% or less. Another method of calculation is to simply take all housing-related expenses and divide by gross income. That ratio cannot exceed 31%, according to FHA standards.
To Save Money For A New Home
As a homeowner, you need to make an important calculation to determine how much a refinance will cost and how much you will save each month. If it will take three years to recoup the expenses of a refinance and you plan to move within two years, that means you are not saving any money at alldespite the lower monthly payments.
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Mortgage Insurance In A Refi Fha To Conventional Loan
The biggest question borrowers have is:
Can you refinance an FHA loan to get rid of PMI?
PMI, or private mortgage insurance, is required with conventional loans if you dont yet have 20% equity in the home.
But FHA loans require mortgage insurance as long as you have an FHA loan. It doesnt matter how much equity youve built up.
The good news is you can drop mortgage insurance by refinancing FHA to conventional.
The bad news?
You may pay PMI for a while unless you have at least 20% equity in the home. If you have an FHA loan now, you may not have made a large down payment when buying your home. Getting to 20% equity may take many years.
Its not a deal-breaker, though.
Keep in mind that for lenders to cancel PMI, youll need a stable payment history. If you missed payments or cant keep up with your current loan, they may not remove PMI.
Additional Resources
Is Applying For An Fha Streamline Refinance A Good Idea
If youre in good standing with your current FHA loan, you may qualify for an FHA Streamline to lower your mortgage payment. If you meet the requirements for an FHA Streamline, you can speed up the process of getting your mortgage refinanced. The streamlined process will allow you to refinance an appraisal, and maybe also without income verification.
Ready to refinance? You can with Rocket Mortgage®. Still have questions? Contact a Home Loan Expert now.
Get approved to refinance.
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Refinancing Your Mortgage Can Be A Smart Financial Move Potentially Saving You Money On Your Monthly Mortgage Payment Or On Total Interest Over The Life Of Your Home Loan
Before you apply, youll want to think carefully about when to refinance your mortgage. Youll also want to decide if refinancing makes sense financially by weighing any money youll save against the cost of refinancing the loan.
Well review some common scenarios to think through.
Why Does The Fha Offer Streamline Refinancing
A lowhassle refinance program with ultralow mortgage rates might sound too good to be true. But actually, its in the Federal Housing Administration and HUDs best interest to offer a Streamline Refinance loan.
The FHA can readily favor low rates because its an insurance plan and not a lender.
The agency has no incentive to keep borrowers in highrate loans because it doesnt profit from the interest paid on FHA loans.
To the FHA, lower rates mean smaller monthly mortgage payments. Smaller payments are easier for borrowers to handle. And that means fewer claims against its mortgage insurance program.
The same is true for the Department of Veterans Affairs Streamline Refinance for VA loans.
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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.
Does It Matter What Type Of Loan I Have To Refinance
Depending on what kind of loan you have, refinancing may prove beneficial down the line. For example, loans guaranteed by the FHA come with conditions that make them ideal for refinancing. FHA loans have mortgage insurance costs that will remain for the lifetime of the loan unless certain conditions are met.
Traditional home loans often require buyers to acquire mortgage insurance if they cannot meet the minimum down paymenttypically 20% of the home price. Once the buyers have made mortgage payments that total 20% of the home costs, the mortgage insurance will typically be removed, thus lowering the overall monthly payment.
It is possible to refinance your FHA loan into another type of FHA loan or even into a conventional one at the same or higher interest rate and, in doing so, drop the mortgage insurance and save money in the long run. If you refinance your FHA loan into another type of FHA loan, you are eligible for a refund of your mortgage insurance costs. That said, its better to refinance sooner rather than later after youve purchased your home because the FHA reduces a borrowers eligible refund amount by two percentage points for each month after the initial closing date.
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Your Credit Score Has Improved
When looking into refinancing to a conventional loan, pay close attention to your credit score. Its critical in determining the value of the refinance.
Credit scores are very important when determining both the interest rate and the monthly cost of private mortgage insurance on conventional mortgages, says Julienne Joseph, Associate Director of Government Housing Programs at Mortgage Brokers Association. The higher the credit score, the better the interest rate and the private mortgage insurance monthly payment.
If your credit score has improved since you applied for your FHA loan, you might be able to get more favorable terms with a new conventional mortgage. Due to high demand this year, most private lenders will need to see excellent credit scores above 700 to give you the best refinance rates.
What Do I Need To Convert My Fha To A Conventional Loan
You will generally need to present a complete picture of your finances to the lender for a refinance. You may need to gather tax returns, W-2s and 1099s, asset statements, and credit reports. In many cases, youll also pay for a home appraisal to satisfy the lender.
It would be helpful for borrowers to have the closing documents from their existing mortgage handy to help compare terms with the proposed new mortgage costs and payment, says Joseph.
To make sure you get the best refinancing option thats available to you, speak with a few different banks and lenders before settling. The right choice may not be the first that comes up.
Its important to do comparison shopping in the same way you would if you were buying a car or anything else, says Dworkin.
Take an honest look at your financial situation and what you expect the next few years will look like. Depending on what your goals are, sticking with the FHA loan could be the better bet.
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You Want To Convert From An Adjustable Rate To Fixed
If mortgage rates are increasing and you currently have an ARM or adjustable rate mortgage you may want to consider refinancing and converting to a fixed-rate mortgage. Thats because with an ARM, your rate may increase beyond what youd pay with a fixed-rate mortgage. If youre concerned over future interest rate hikes, a fixed-rate mortgage could provide some peace of mind.
Should I Refinance From An Fha To A Conventional Loan
If you currently have a government-backed loan like an FHA loan you may be thinking that now is a good time to take advantage of low interest rates and refinance to a conventional mortgage. Making the switch can offer many advantages, but keep in mind that just because you want to, doesnt mean you can or should refinance.
Here are a few things to consider.
You may be able to get rid of mortgage insurance
With an FHA loan, borrowers who put down less than 20 percent will pay two kinds of mortgage insurance: a one-time, upfront mortgage insurance premium and a monthly mortgage insurance payment that is required for the life of the loan.
On a conventional loan, borrowers who put down less than 20 percent are also charged a monthly fee called private mortgage insurance . However, PMI can be removed once a borrower hits 80 percent loan-to-value.
For FHA borrowers who have at least 20 percent equity, refinancing into a conventional loan allows them to potentially eliminate that extra mortgage insurance payment, said Patty Leonard, senior residential loan officer with Independent Bank. Your lender will likely order an appraisal to confirm youve reached that threshold, but if so, dropping mortgage insurance, as well as possibly taking advantage of a lower interest rate, could save you a significant amount of money.
But what if you havent quite hit that 20 percent mark? Leonard says it may still be worth refinancing into a conventional loan.
Something else to consider
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