When not to Consider Refinancing a Home
March 13, 2024
But there are other smart reasons not to refinance a home or to delay the decision until later. We examine some of the major ones below.
FHA Refinance Loans for Long-Term Homeowners
If you plan to refinance your home loan, you’ll need to save for the closing costs, origination fee, etc. One lender estimates the price of a refinance loan to be between 3% and 6% of the loan amount.
But does paying that fee make sense if you don’t plan to stay in the home for a long time? If you’re considering selling the property in the short term or even a bit longer down the road, you may do well to save the expense of a refinance loan in anticipation of not owning the home any longer.
If you plan to keep the house long-term, the math is different. How much do you save on a monthly mortgage payment by refinancing? Refinancing may make more sense if you aim to lower your monthly bills.
However, refinancing to save money throughout the loan in interest doesn’t work if you don’t stay in the house long term.
Refinance to Renovate?
If you need cash to improve a property, there are multiple FHA options to refinance. The numbers drive a decision to go with an FHA cash-out refinance or an FHA 203(k) rehab loan.
If you want to make standard improvements that don’t require work on load-bearing walls, you can use a smaller 203(k) rehab loan rather than fully refinancing your home with a cash-out loan to do so.
If you need to do extensive work covered under the 203(k) program, applying for a standard 203(k) refinance loan may be wise.
Why? Because an FHA cash-out refinance is limited to 80% of the home's value. A 203(k) rehab refinance loan offers an LTV of “110 percent of the After Improved Value (100 percent for condominiums)” or the appropriate area loan limit according to HUD 4000.1, the FHA Single-Family Lender’s Handbook.
Don’t Refinance to Cover Credit Card Debt
Why give this advice specifically to those who want to apply for an FHA cash-out refinance loan to pay off credit card bills? Because using credit to pay off revolving credit can lead to the borrower running up the same accounts again later, canceling out the first credit card payoff.
It’s better to pay off debt that won’t recur if you do so with an FHA cash-out refi.
------------------------------
RELATED VIDEOS:
Don't Skip the Home Inspection
Bigger is Better With a Jumbo Loan
Insuring Mortgages With the FHA Funding Fee
FHA Loan Articles
November 12, 2024Escrow is an important feature of most typical FHA loans. An escrow account is a third-party account where borrowers deposit funds designated for property taxes and other uses. Requirements to use escrow accounts typically stems from a need to protect all parties involved in the transaction
November 2, 2024When it’s time to consider buying a home, the Federal Housing Administration (FHA) offers two popular options. One is the traditional FHA purchase loan many use to buy a house in the suburbs. But not everyone wants to buy an existing property. Some want more control over the design and configuration of the home.
The other FHA construction loan option, the one-time close mortgage, comes in here. This option is for those who want to approve floor plans, have a say in the types of materials used to build the home and choose its features.
October 31, 2024When buying a home for the first time, it helps to know how long the process can take. How do you know if your appraisal report is delayed if you don’t know how long the FHA allows for the process to be completed? How long does it take to get from the final offer to closing day? A “typical” FHA loan process may take up to 45 days from start to finish. Several factors can influence this timeline.
October 30, 2024Just because an FHA loan is designed to be more lenient with FICO scores and require a lower down payment doesn’t mean the house you buy with that loan is less than ideal. Did you know that FHA loans have minimum property standards to ensure the home is safe and livable? Those standards require the home to have an “economic life” for the entire term of the loan so you can freely sell the property later on if you choose to do so.
October 29, 2024Buying a home with an FHA mortgage is a major life decision, and preparation is essential before you start house hunting or consider making an offer on a property.
How to get started? In the early stages, establishing your budget and how much work you need to do on your credit is key. But once you have gotten past the initial phase of that planning you’ll want to consider the house itself and what you want from it.
