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6 Practical Steps To Determine If An FHA Loan Refinance Is Right For You

By Kate Ford

Republish: EasyPublish™ Published: 28Jan2009 Word count: 575 Viewed: 466 time(s) Get Free Content For Your Site

Are you ready to refinance? An FHA loan refinance may be just the ticket.

If you are a homeowner, you have already experienced applying for a mortgage. According to FHA, refinancing with this insured mortgage is the same as applying for any other home loan but in addition qualifying standards are easier and protections better.

Here are 6 practical steps the Federal Housing Administration recommends you take to determine if an FHA loan refinance is right for you.

1. Do you already have a FHA home loan?

If you do, there are a few more options available to you such as an FHA streamline refinance. If you don't know what type of loan you have, ask your current mortgage servicer. Either way you can still take advantage of an FHA loan refinance.

2. Why are you refinancing?

Perhaps you intend to take advantage of the current interest rate environment. You may want to consolidate other debts such as credit cards or home equity loans into one. If you intend to make some home improvements, you may be contemplating the option of taking out cash from a portion of your equity.

Whatever your home loan refinance goals are, knowing your primary purpose to refinance will help determine if there is an applicable FHA refinance mortgage for you.

3. How much can you afford?

Most people let their lender tell them what they can afford but there is a fundamental difference between affordability and qualification.

Here is the definition of afford according to Merriam Webster's Online Dictionary. Afford means manage or bear without serious detriment.

But no lender can tell you what you can manage without detriment to your financial affairs. Only you can decide that. So before you contact an approved FHA lender, give some serious thought to how much you can afford in a home loan.

4. Shop for an FHA approved lender.

Contact several lenders. Explain your intention to refinance and that you want to explore the opportunity of an FHA insured mortgage. Not all lenders are approved by the Federal Housing Administration so ask upfront if they have approval.

Compare mortgage closing costs and interest rates between lenders. Ask for a preliminary Good Faith Estimate detailing fees, loan amounts, interest rate, loan program and monthly payments. Then simply compare the information.

Also ask when you can lock in your interest rate, for how long, and if there are charges for locking, upfront or included in the loan. Find out the policy if interest rates were to drop during the FHA loan refinance process. Request and review a written rate lock agreement before making application.

5. Ask to be prequalified upfront.

Prequalification works well for refinancing because it is not as in depth as mortgage preapproval. Because prequalification is informal, you don't need to provide social security numbers. This eliminates multiple credit inquiries.

Getting prequalified by a lender helps to estimate the amount you will be qualified to borrow. Your loan amount will be calculated using basic factors such as income, monthly expenses, current interest rates and verbal information you can provide regarding your credit history.

Most mortgage brokers will do this over the phone or in person if you prefer.

6. Now it is time to apply for the FHA refinance mortgage.

Your lender will order your credit report and give you a checklist of documentation they require to process your FHA loan refinance.

So if you are thinking about refinancing, an Federal Housing Administration mortgage may be your ticket.

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