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
June 30, 2026FHA loans offer low down payment options and more forgiving credit requirements for borrowers who may not qualify for a conventional mortgage or need to save more money out of pocket at the front end of the mortgage. But even with more forgiving credit requirements, some borrowers are tempted to omit certain debt information from their home loan applications. What does it mean to conceal a debt or financial situation from your loan officer?
June 30, 2026Some borrowers start working on their credit scores but get impatient with the process because they can't predict when their efforts will change their FICO scores. How long does it take for your FICO scores to update when you pay off a loan, reduce your credit card balances, or take other steps to make yourself a better credit risk? The short answer is that credit reporting procedures are not standardized, and it may take more time than you realize to get those positive credit actions added to your credit report.
June 29, 2026Mortgage interest rates are "moving targets" shaped by national economic trends and the borrower's specific financial profile. What is your FHA loan interest rate? Much depends on the financial data you bring to the table. Lenders set interest rates daily based on a snapshot of market conditions, but the rate ultimately offered also reflects risk, equity, and the lending institution's internal operational costs.
June 28, 2026An FHA appraisal differs from a conventional appraisal. While the goal of a conventional appraisal centers on market value, the FHA appraisal also focuses on the buyer's safety and soundness. FHA lenders select the appraiser, not the home buyer.
June 24, 2026FHA loan closing costs vary by property price and geographic location, rather than by a single nationwide flat fee. Total settlement charges combine percentage-based fees, local government taxes, and marketplace service costs. If you are new to buying a home, you'll want to get familiar with the closing cost issues discussed here to avoid budgetary surprises later on.
