https://youtu.be/wRb2qK0RkDU There is no set definition about what is considered pre-qualified and what is…
How do I know if refinancing my Papillion NE FHA loan is a good idea?
Refinancing an FHA loan to a conventional loan, depending on your exact situation, is a way to drastically lower your monthly mortgage payment. If you live in Papillion NE and currently have an FHA loan, refinancing out of FHA and into Conventional could save you hundreds a month.
The only way to really know if refinancing will benefit you is to speak with a local mortgage lender, but there are things to consider first.
How long have you had your FHA loan?
Most buyers use the FHA loan program because they did not have a large down payment when they purchased their home. FHA is a great program for buyers will little money down, but it has disadvantages that do not go away as you build equity. After a few years you have likely built up a bit of equity as you paid down the loan and the value of your house went up. Papillion home values have increased about 3.61% a year over the last 10 years so if you used FHA’s 3.5% down payment when you purchased it is possible you have as much as 10% equity after just a few years of home ownership. If you would like an estimate of your home value and equity enter your address here:
I am a local mortgage broker serving Omaha, Papillion, Bellevue, La Vista, and all of eastern Nebraska. If you need help finding a local realtor or qualifying for a home loan please contact me.
How was your credit when you purchased your home? How is it now?
Another reason you may have used an FHA loan is due to credit or credit score. The FHA loan program is a great option for buyers with less than perfect credit or with a credit event that might have limited their options. With a few years of good mortgage payment history and no recent credit issues, it is likely your credit scores have improved. A bankruptcy or foreclosure in the recent past may have limited you to FHA financing as well. If those negative events have aged a few more years you may now qualify for conventional financing. If you believe your situation has improved contact us and we will check your credit history so you can know for sure.
Were your debt-to-income ratios high when you got your FHA home loan?
FHA allows much higher debt ratios than conventional and this makes it ideal for buyers with high debt and/or lower income. Many first-time home buyers use the program when they are just starting their careers. A few years later, and after a few promotions, those homeowners could now fit into conventional guidelines. If you purchased your home by yourself and are now married with two household incomes, you could qualify for a conventional loan. Contact us so we can go over your current income and financial situation. We will likely be able to give you a rough idea if you qualify for conventional financing with just a quick phone call or email conversation.
Again the only way to really know if refinancing your FHA loan to a conventional loan is a good idea is to speak with you directly to get a full picture of your credit and finances.
What are the benefits of refinancing my Papillion NE FHA loan?
With a bit of equity in the home and improved credit scores, refinancing from an FHA loan to a conventional loan is almost always a good idea.
FHA has high mortgage insurance
FHA loans, depending on credit score, typically have better rates than conventional, but they have much higher mortgage insurance. While FHA HUD has adjusted the mortgage insurance in the past, right now it is set at .85% of the loan amount per year. If you have a 100k FHA loan you will pay $850 a year divided out over your 12 payments. Conventional also have mortgage insurance (if you have less than 20% equity) but it is based on your credit score and down payment. While it does change based on these factors it is almost always much lower than FHA’s MI fee.
FHA’s mortgage insurance is permanent
This is the biggest reason to get out of an FHA home loan once you have enough equity. Unlike conventional loans, FHA mortgage insurance does not drop off at 20% home equity. The FHA mortgage insurance is charged for the life of the loan. If you currently have an FHA loan and have 20% equity, refinancing to a conventional will save you hundreds or thousands a year just in mortgage insurance payments.
You may be able to get a lower rate with conventional financing
FHA loan rates are typically lower than conventional loan rates. However, if you needed FHA financing due to low credit scores, and they are now higher, you may now qualify for a conventional loan with a lower rate. This will depend on the current market rates, but all rates improve with better credit. If you now have home equity and better credit, the monthly savings on a conventional refinance could be huge.
What are the draw backs to refinancing your Papillion NE FHA loan?
Refinancing is only a benefit if you plan to stay in the house long enough to make up the cost of refinancing.
Refinancing has cost
You may have heard people say they refinanced with no closing cost. This may have been technically true, but all loans have cost. Depending on the market rates, it is possible to “roll the fees into the rate”. A lender can offer a higher rate in exchange for covering some or all of the cost. If current rates are much lower than your rate, and you do not plan on being in the house for an extended period of time, this could be a good option. Our team can prepare a no cost option and a lowest rate option for you to compare.
Refinancing starts the loan terms over again
It is important to remember that refinancing is a new loan. If you have paid on your 30-year loan for 5 years, you now only have 25 years left to pay. Refinancing will start it back over at 30 years. You will have to decide if the lower payment is worth the extra years with a mortgage. We can also look at 25, 20, and 15 year loan options if you would like to get it paid off sooner.
If you are currently in an FHA home loan enter your address in the “Homebot” link above. By entering your email address you will receive a full home report once a month that will give you a home value estimate, mortgage balance, and equity estimate. It will also make suggestions on refinancing. If you think it might benefit you or would like to explore options please contact us.
Other useful links
- How to improve your credit
- The 20% down rule on conventional
- What is Escrow?
- How is income calculated?
- Why your assets matter
- Mortgage Calculator
- Is Credit Karma accurate?
- FHA vs Conventional, which is better?