Alternatives to FHA Streamline Refinancing
When it comes to mortgages, real estate, and refinancing, everyone has different needs and no option is perfect for all homeowners. We understand that in many cases, an FHA Streamline Refinance may not be available, or it may simply not be the right choice for your needs. With that in mind, we’d like to show a few alternatives to FHA Streamline Refinancing.
Refinancing to a Conventional Loan
This is often the choice for homeowners all across the country. Because greater home equity is returning to the market, thanks to the strengthening economy, conventional financing appears to be on the rise.
With a conventional loan, you can refinance a primary residence and turn the home’s equity into cash. (Known as cash-out refinancing.) This option also allows you to eliminate private mortgage insurance if you have reached 20% equity; eliminating insurance may not be possible with your FHA Streamline Refinancing.
One of the advantages of refinancing into a conventional loan is that you can likely get a lower interest rate. Combined with no mortgage insurance, this often makes conventional loans the top refinancing option for borrowers.
Refinancing to a VA Loan
If you qualify, you may be able to refinance your loan into a VA loan. VA loans often have lower interest rates and looser underwriting standards for people who are eligible, which includes service veterans as well as many family members of those who served.
One of the top advantages for refinancing with a VA loan is that you can refinance for up to 10% of your home’s value and there will be no mortgage insurance. The process for approval also requires minimal documentation if you are eligible. There will be no credit check and no appraisal for refinancing, although some lenders may still require these steps before writing the loan.
VA also offers cash-out refinancing, which is not available with FHA Streamline Refinancing. Veterans or qualifying family members who have equity in the home can get a larger loan for other financial needs, although they will obviously have to repay this money in the future. Still, if you need a quick injection of cash, this can be beneficial.
Using the Home Affordable Refinancing Program
This is a lending program designed for people who have little to no equity in their home but still want to refinance. It’s also one of the few options available for homeowners who are “upside down” on their mortgage, meaning they owe more than the home is actually worth. No matter what your equity status, this refinancing program can be used if you have a mortgage loan that is currently held by Fannie Mae or Freddie Mac.
This program was created in 2009 and allows borrowers to refinance into more affordable mortgage programs. Specifically, it is meant for borrowers with less than 20% equity in their homes and “limited” delinquencies on their loans.
For this refinancing program, there is no loan-to-value ceiling, and, like FHA Streamline Refinancing, it can be completed without an appraisal. There were certain fees for borrowers who select a shorter amortization term, but these have been eliminated.
With HARP, you can get a lower interest rate on your loan, which will result in a lower total cost for borrowing money. You could also get a shorter loan period, which means it will be repaid faster. You can also refinance from an adjustable-rate mortgage (ARM) to a fixed-rate if you desire. Another advantage to this program is that there is no minimum credit score. If you have a loan that is currently owned by Fannie Mae or Freddie Mac, you may want to consider this option.
This is a very different form of refinancing that allows you to turn equity into cash. Known as “cash-out refinancing,” this system basically gives you a loan for a specific amount that you repay over a certain period. The catch is that the lender has a lien against your property; if you don’t repay the loan, they have a legal right to seize your property just like the previous loan. This creates risk for borrowers, but because the lender has collateral, the terms, especially interest rates, can be more favorable.
To utilize cash-out refinancing, you usually need to have at least 20% equity in your home. So if your house is worth $1 million, for example, you need to have at least $200,000 in equity. Most people who have been paying on their mortgages for many years will have reached the point where they can utilize cash-out refinancing.
Let’s look at how this might work: say you have a home worth $500,000 and an existing mortgage loan with $400,000 remaining in the balance, which means you are at exactly 20% equity. However, you need $50,000 for home remodeling and repairs, cash that you don’t have on hand. You can use cash-out refinancing to get a loan for $450,000; $400,000 will go to pay off the existing loan, while the remaining $50,000 can be used for your upgrades.
This is a popular alternative because FHA Streamline Refinancing only allows for $500 cash-out. In the larger perspective of homeownership, $500 is next to nothing, so this is not really a selling point for FHA Streamline Refinancing, and in most cases the $500 will be consumed in closing costs, fees, and other expenses; even then you’ll likely need money from your own wallet.
Cash-out refinancing is available through various lenders, including large banks and the VA.