If you applied for an FHA loan and you’re looking to refinance, you’re in luck. Just like any home loan, Federal Housing Agency Loans can be refinanced to better suit your current financial situation.
Here’s what you need to know to refinance your FHA loan to a conventional loan.
What is an FHA Loan?
FHA loans are backed by the Federal Housing Agency.
While many homebuyers take out conventional loans, FHA loans are available for buyers who don’t meet the requirements for a conventional mortgage.
The lower down payment and credit score requirements of FHA loans make homeownership attainable for more people.
FHA Home Loans vs. Conventional Mortgages
Although FHA loans make homeownership more accessible, FHA borrowers can spend thousands more on interest in the long run.
Conventional loans require you to pay more upfront for your down payment. A larger down payment reduces the amount of interest you will pay on your loan over time.
When you refinance, you may be able to get a lower interest rate if your credit score has improved.
For this reason, many FHA loan borrowers switch to a conventional mortgage once they become more financially stable.
Why Should I Refinance FHA Loan?
The qualifications for FHA loans and conventional loans differ greatly.
If you now qualify for conventional financing, taking the time to refinance could save you thousands of dollars on interest and private mortgage insurance. If your income and credit score have risen, you may be qualified for a conventional mortgage.
One of the biggest faults with FHA loans is that borrowers have to pay FHA mortgage insurance. If you now have at least 20% equity in your home, you can eliminate this cost and save money every month.
Private mortgage insurance on a conventional loan is much more affordable, and the higher your credit score, the less you’ll pay.
Refinancing also allows you to take advantage of great mortgage rates when they are low.
FHA loans are useful if you want to buy a home sooner rather than later, but once you’ve become more financially fit and built equity, it’s best to refinance to a conventional loan to save money.
How to Refinance FHA Loan in Houston
If you purchased a home in Houston with an FHA loan, there are a few important steps you need to take to refinance to a conventional loan.
First, you’ll need to research the lowest refinance rate. Then, you have to apply for the mortgage with multiple lenders.
Refinancing requires you to apply for the mortgage just like you did when you took out the FHA loan, so you’ll have to provide all the same documents. Tax returns, proof of identity, and asset account statements will be requested by your lender.
Once you’ve chosen a lender, you can lock in your interest rate. Then, you and your lender will need to close on the loan while the rate is locked.
Once you pay the closing costs, you have successfully refinanced your mortgage.
Whether you want to reduce your monthly payment or nix your FHA mortgage insurance, refinancing can help you save money and pay off your loan faster.