Refinancing your mortgage with an FHA Loan

By Tony Caro

Among the several programs put in place by the federal government to promote home ownership, there is one that offers homeowners a number of benefits. The FHA loan, insured by the Federal Housing Administration, allows lenders to give would-be homeowners a better deal on their mortgage. This also means that a homeowner has the opportunity to get a mortgage more quickly with easier qualification, a low closing cost and a low down payment.
 

Who Can Benefit From An FHA Loan?
 

There are five situations from which would-be homeowners can benefit from getting an FHA loan.
 

1. Those looking to improve the energy efficiency of their homes can take advantage of the FHA Energy-Efficient Mortgage. This option eliminates the need for homeowners to take out a second mortgage on their home in order to cover energy efficiency upgrades.
 

2. Seniors wanting to get money from their homes but continue to live there can do so with the FHA Reverse Mortgage, which allows for partial conversion of home equity into cash.
 

3. First-time home buyers can enjoy down payments as low as 3.5% of the purchase price of their 1-4 unit property, with fees and closing costs included in the loan.
 

4. Those who need financing for a mobile or factory-built home can take advantage of two FHA products.
 

5. One-loan coverage for those looking to either purchase a fixer-upper home or remodel or repair their current home is available.
 

What's Needed To Qualify For An FHA Loan?
 

There is an income requirement for the FHA loan. Your DTI (debt-to-income) ratio - which is your total monthly household expenses divided by your total monthly gross income - must be at .43 or lower. Looking at your credit report will reveal some of your monthly expenses, which will need to be added to your property taxes, insurance and your new mortgage payment amount.
 

If you are self-employed and have had your business for two years or more, the question of your FHA loan qualification can be answered by consulting your tax return for your net income after deductions. Dividing that number by 12 will reveal your total monthly gross income. However, these aren't the only two ways you can qualify. If your debt ratio exceeds their limits, you may still qualify for an FHA loan if you:
 

-  Have three months of reserve savings in your bank account after closing;
-  Use credit sparingly; 

-  Either paying an amount that equals or exceeds new mortgage payment amount;

-  Can verify an earnings increase;
-  Will see a minimal increase in your housing payment.
 

Why FHA Loans Aren't For Anyone
 

Although the FHA loan has many benefits, as with anything else you're looking to purchase, there are always caveats.
 

First of all, you will have to have some sort of credit history in order to be able to apply for an FHA loan. Even though your credit doesn't have to be perfect, you will need to show at least some evidence that you are capable of handling credit. There may be considerations for extenuating circumstances, such as when a wage earner falls ill, as well as for bankruptcies and collections.
 

FHA loans come with a 1% up front, and 0.85 to 0.9% annual insurance premium for the first five years. And this is regardless of whether or not your home has sufficient equity or your loan to value ratio is 20%.
 

You will also see a lower loan amount with FHA loans, which means you may not be able to borrow as much as you need.
 

Finally, there are fewer options for home loans with FHA than there are for other loaning institutions. This is because the FHA loan serves the basic needs of a particular group of buyers. As such, the loans are of low risk to lenders.
 

The FHA is just one option when the goal is to become a homeowner. Understanding which options are available to you can mean that you're more informed when the time comes to make a decision about how you want to handle your mortgage.

Citations:

• Information on FHA Loans
  

Guest author Tony Caro writes on a variety of topics, and is particularly well-versed in the topic of refinancing your home mortgage.  He is a frequent contributor at http://www.refinancehomemortgageguide.com/.  You can also find Tony on Google.

Guest post: Refinancing your home loan to invest: Beware of the risks

 US-PDGov

By: Allan Jones

Refinancing 

Refinancing a loan simply refers to getting a new loan on the same property to pay off the mortgage or for any other purpose such as investment or business. This second loan is decided upon the equity or value of your home; therefore, if you have a high home equity, you can acquire a large share of money to start a new business or refurnish your home, depending upon your needs.

Why should you refinance to invest 

Using the equity of your home to refinance can help you a great deal as it gives you the benefit of extra income as well as a source to repay your mortgage faster. Refinancing is a helpful resource in generating extra income and revenue for you, and can also fulfill any urgent needs of cash on your account.

Benefits 

You can use the second loan for a more fruitful investment and reap additional income, and open doors for business and trade ventures. The loan can also be used to pay off your mortgage faster and secure your property.

Risks involved in refinancing 

Although the lure of refinancing your home loan is pretty attractive, the benefits and charms come with strings attached. Therefore, it is advisable to learn the finer details and darker aspects of the refinancing package before taking a plunge.

1. Loss in the investment 

It is a gamble to invest your hard earned money in a business due to the constant fluctuating scenario of the market. While there are fair chances that your investment and business may flourish, any losses or setbacks you encounter in the course may make the pay back of your loan difficult and unaffordable. Therefore, make sure you have adequate savings in check before you opt to invest all your equity in an investment. Negative output can not only cost a high debt, but can also make you lose your home.

2. Share market risks 

An investment in the share market can also turn into a bane in the case rates decline suddenly. This can cause a major blow to your finances; therefore, keep this point in your mind when make an investment in the share market.

3. Rise in interest rates 

The income you generate from your investment should be higher than your interest rate in order to have a sound and smooth payback period. As refinancing increases your debt to twice, any rise in the interest rates can increase your monthly payment to a considerable degree.

When is the best time to refinance? 

Refinancing comes with its pros and cons, and the end decision lies in your hands whether it is suitable for your needs or not. However, generally the best time to refinance a loan is when the rates are lower and you have adequate savings intact to deal with a rate increase or complication in the future.

Allan has been blogging about financial news and tips for the last 3 years. Allan's favourite topics include the rising cost of debt, loan refinance strategy and retirement planning. Allan holds a BA in Business Administration with a specialty in banking.

How to qualify for stimulus refinance loans

Qualifying for stimulus refinance loans involves identifying which governement stimulus program one is eligable to apply for refinancing through. Two such programs are The Homeowners Affordability and Stability Plan which is part of U.S. Government's Housing and Economic Recovery Act, and the Hope for Home Owners (H4H) program.

The U.S. Government has estimated millions of American residents will be able to qualify for these loans in order to assist in building household financial stability. Stimulus loan finance is not available to everyone as this article will illustrate. However, for those that do qualify, the problem of low to negative home equity value is addressed by the loan refinancing section of the plan.

What a stimulus refinance loans is

A stimulus refinance loan specifically addresses the problem of refinance disqualification from lowered home value or financial distress. Moreover, in the Homeowners Affordability and Stability Plan, the goal is to help responsible mortgage owners refinance their existing mortages even if they have less than 20% equity value in their homes. The refinancing options available to qualifying individuals include both fixed rate and adjustable rate mortgages and the benefits of these loans are as follows:

• Rewards homeowners who have consistently paid their mortgage
• Helps lowers mortgagees mortgage interest rate
• Assists in generating more equity value in property over less time
• Ameliorates some of the refinancing complications exacerbated by refinancing policies
• Potential to reduce mortgage amount by $1000 for 5 years (savingtoinvest.com)

Hope for Homeowners loans are different from Homeowners Affodability and Stability plan loans in the sense that the homeowners may be struggling to keep up with mortgage payments. This program refinances loans at 96.5% of current appraised value thereby taking the burden of equity loss off the qualifying loan applicants financial profile. These loans must also be qualified and applied for through existing home mortgage lenders and may also involve a restructuring of the existing loan using the pre-existing mortage amount.

Qualification criteria

The qualification criteria for Homeowners Affordability and Stability plan require what is called conformity' which means the existing mortgage must be sponsored or guaranteed by either Freddie Mac or Fannie Mae, two of the largest U.S. mortgage buyers with accountability to the Government. Additionally, the mortgages must be under a predetermined financial value, be for a residence, and cannot have a market value of less than 5% of the pre-refinanced mortgage amount. Other criteria include the time in which the refinancing takes place and when the original mortgage was obtained.

After qualification has been determined, especially mortgage ownership or guarantee from Freddie Mac or Fannie Mae, the refinance loan can be applied for through a loan officer at the existing financial institution that maintains the mortgage In such case, several documents are required as in the case of most mortgages. Typically these include income information, identification, tax documents, existing debt, assets etc.

Accodring to the Department of Housing and Urban Development, Federal Housing Administration, qualifying for the H4H program involves meeting the pre-determined criteria. These criteria include loan origination prior to January 1, 2008, non-intentional default, mortgage payment in excess of 31% of the mortgagee's gross monthly income and truthful application for original mortgage i.e. non-falsified income and/or other information. These and any other qualifying factors can be viewed at the FHA website or discussed with mortgage servicers.

Summary

Stimulus refinance loans are aimed at existing homeowners with either low equity value or troubled financial situations. Since the Homeowners Affordability and Stability Plan loans only address existing homeowners with good credit histories and specific borrowing criteria, they only apply to certain homeowners.

Similar qualifying criteria are applied to the H4H program, specifically financial difficulties during home ownership. These criteria are illustrated in this article and in the case of the Housing affordability loans, include mortgage support by one of two named U.S. large mortgage buyers. This may automatically exclude certain mortgagees in similar situations who did not take out conforming' mortgages.

For those who do qualify for stimulus refinance loans, the benefits can include lower mortgage interest premiums, reduce mortgage, refinancing qualification, and low equity relief. To apply for and/or learn more about the stimulus refinance loan options, it may be helpful to contact a loan officer, Housing and Urban Development department (HUD) representative or the U.S. Department of the Treasury.

Sources:

1. http://www.savingtoinvest.com/2009/03/will-my-mortgage-now-qualify-for.html
2. http://www.debtconsolidationpost.com/?p=702
3. http://www.treas.gov/press/releases/tg33.htm
4. http://findarticles.com/p/articles/mi_m0EIN/is_2009_Feb_24/ai_n31375948/
5. http://portal.hud.gov/portal/page?_pageid=73,7601299&_dad=portal&_schema=PORTAL