The FHA is a federal government agency within the U.S. Department of Housing and Urban Development.
FHA plays a significant role in helping low- to moderate-income families qualify for mortgages. FHA assists first-time buyers and others who would not qualify for a conventional loan, by providing mortgage insurance to private lenders. Interest rates for an FHA loan are usually the going market rate, while the down payment requirements for an FHA loan are lower than conventional loans.
The required down payment can be as low as 3.5 percent and the closing costs can be included in the mortgage amount. The FHA isn’t a lender and doesn’t directly make home loans. Instead, the FHA insures home loans against the borrower’s default to encourage lenders to offer the loans to home buyers and homeowners at more affordable interest rates.
The FHA has a special program that can help you refinance your FHA loan through a streamline process that’s easier than the typical refinancing.
Here’s a summary of what an FHA streamline refinance is, what the advantages of an FHA streamline refinance are, how an FHA streamline refinance works and what the requirements are.
FHA Refinance Loan Streamline Process
It’s important to remember that “streamline” doesn’t mean you can refinance your FHA loan without any closing costs. Instead, “streamline” refers only to the process, which involves less documentation and other requirements than a typical mortgage refinance does. For example, an FHA streamline refinance loan might not require an appraisal. That’s a major advantage if you want to refinance but believe your home has declined in value.
Though the streamline refinance isn’t cost-free, your lender may allow you to finance the closing costs through a slightly higher interest rate on your new loan. That means you won’t have to pay a lot of cash out-of-pocket to streamline refinance your existing FHA-insured mortgage. Instead, you’ll pay a higher interest rate and your FHA lender will pick up the tab for the closing costs of your streamline refinance. If you refinance into an FHA loan with a lower interest rate, you’ll still save money on your monthly mortgage payment.
Qualifying for an FHA Streamline Refinance Loan
The basic requirements for an FHA streamline refinance are:
- The mortgage that you want to refinance must be an FHA-insured loan.
- You must be current (i.e., not delinquent) on your mortgage payments.
- The primary reason why you want to refinance your FHA loan must be to lower your monthly principal and interest payment.
- You cannot tap your equity (i.e., take out cash) if you use the streamline process.
The FHA streamline refinance loan program isn’t new; in fact, the streamline process has existed since the early 1980s. An FHA-approved lender can help you get started on your FHA streamline refinance loan.
What are the standard FHA loan requirements?
If you are interested in applying for an FHA loan, it is important that you know the minimum requirements to avoid unnecessary stress.FHA loans were put in place by the Federal Housing Administration in 1934 to assist lower to middle-income Americans become homeowners and to help boost the housing market. They do not outright provide loans to applicants, but they back the loans by providing two types of private mortgage insurance. This mortgage insurance protects the lenders who extend the loans.
To qualify for an FHA loan, you must meet the following requirements:
- Minimum credit score of 580
- 3.5% down payment or a 10% down payment if credit is between 500 – 579
- Documentation of income (pay stubs, tax returns and W2’s)
- Must be primary residence (cannot be used for second home, vacation home or rental property)
- CAIVRS (Credit Alert Interactive Verification Reporting System) must be clear. This database shows people who have defaulted on government loans, owe back taxes or who have other federal debt.
If you meet the standard FHA loan requirements, you will have what you need to proceed with applying for this type of loan.
What can you do to get the best FHA loan mortgage rates?
If you meet the standard requirements to get an FHA mortgage loan, there are a couple of things you can do to get the best possible rates. When a lender decides to extend financing to an applicant, they look at several factors to see if the client has a risk of defaulting on the loan or not. If the applicant has poor credit, they have a track record of not paying their bills on time thus having a higher likelihood of defaulting on the loan.
If you want to lower the rate you receive, you need to work on improving your credit score before applying for a mortgage loan. The best way to improve your credit would be first to pay your bills on time and then pay off any credit card debt. Once you pay off the credit cards, you should leave them open as this reflects positively on your credit and raises your credit score.
Another thing you can do to get a better rate would be to increase your down payment. If the down payment is 3.5% and you put 10% or more down, this will lower the interest rate charged.
Therefore, if you want to get the best FHA loan mortgage rates, you need to increase your credit score and save more money.
Should you apply for an FHA home loan?
If you want to purchase a home but are afraid that with your low credit score that you will not qualify, then you should look into an FHA loan. In 1934 the Federal Housing Administration said they would offer insurance to private lenders if they extended financing to those with poor to medium credit and who have little savings. The reason they did this was to provide a boost to the stagnant housing market that was left devastated by the Great Depression.
To qualify for an FHA loan, the applicant will need to have a minimum credit score of 580 and have a minimum down payment of 3.5%. If the applicant has a credit score between 500-579, some lenders will still extend credit if they put a down payment of 10% down. If the applicant does not have a credit history, some lenders will make allowances to extend financing. If the applicant cannot cover closing costs, some FHA lenders will offer to pay these fees but charge a slightly higher interest rate to offset the difference. The applicant will also be required to pay two separate types of mortgage insurance which can typically be rolled into the loan itself. If the applicant needs extra cash to make repairs, some lenders will allow them to borrow the extra money. Of course, before it gets this far, the home must pass appraisal from an FHA approved appraiser.
How to choose an FHA mortgage company?
When it comes to choosing an FHA mortgage company, it is important that you find one who not only offers you the best possible loan but also have your best interest at heart. As you begin searching for the best one, it can quickly become overwhelming because there are several of them out there who all claim to offer the best possible service. To not become overwhelmed it is important to take notes listing the pros and cons of each one. This will assist you when it comes time to decide which one to use.
With mortgage lenders, they can all extend financing however they each have their specific cut-offs and guidelines they adhere to. You can confidently choose our FHA mortgage company who has your best interests at heart and get into your dream home today!
Are FHA home loans your key to becoming a homeowner?
If you have dreamed of home ownership but felt that due to your income and credit score that it was not within your reach, then FHA home loans in may be the solution you have been looking for.
The Federal Housing Administration began offering FHA mortgage insurance in 1934 which protected lenders allowing them to provide loans to lower and middle-income Americans. Since this time they have insured over 34 million properties. To qualify for an FHA loan, the applicant must have a minimum credit score of 580 and the ability to put 3.5% down. If the credit score is below 580, some lenders will still consider offering loans if the applicant can put at least 10% down. The home being purchased must also pass inspection from an FHA home appraiser.
If your credit score is within the required limits and you have the minimum down payment, then you should contact our lenders for help applying for a loan.
Our mortgage company can help you achieve your dreams!
As you first begin your search for the perfect lender, you will quickly realize that it is not as easy as you first anticipated because there are several of them out there. Although they may all be able to help you secure an FHA loan, each company is different.
When it comes to FHA lenders, they can range from a local mortgage company to a big named bank or online only company. With the local mortgage company, you can expect to receive more personalized attention during the process since they are located within the community. With the big named bank and online-only mortgage lenders, the level of personalized attention will be reduced as the most interactions will happen over the phone or the internet. When it comes to deciding which FHA mortgage company is best for you, it is important you take the time to research each one and choose the one you feel comfortable working with which we know you will find with our team.