The US economy is going through a very rough patch.
The ongoing housing crisis has made a majority of the US population think that it had never ended in the first place.
They live in a time where it costs more to pay rents than own a house and sadly a majority of them are unable to do either. A large populace still believes that the worse is yet to come.
It is in times like this that the Federal Housing Administration (FHA) has a key role to play.
During the banking crisis of the 1930s refinancing was not an option and borrowers couldn’t clear their loans. In 1934 the federal banking structure was revamped and the National Housing Act introduced the FHA. The main aim of this rule was to decrease the down payment and to regulate monthly payments thereby making housing more accessible to all.
In simple terms it is loan insured by the FHA that a lender can offer a borrower without fear. The FHA protects the lenders from defaulters. Since the lenders’ losses are covered, they offer better interest rates and require low down payment. The FHA loans are popular with borrowers for the above reasons and for the flexible qualifications required to apply for a loan. Only FHA approved lenders can issue these loans.
The FHA provides various options to borrowers to either purchase a new house or refurbish the old and also refinance a loan. Here we shall look at the types of FHA Loans and FHA refinancing options.
There are various FHA programs that cater to a variety of situations faced by borrowers. Given below is a table which puts everything in a nut shell.
TYPE OF LOAN
· Fixed rate FHA Loan
|· Those who want to buy a house but don’t have money – college grads, newlyweds.
· Adjustable Rate Mortgage(ARM)
|· Low and moderate income families wanting to own homes.|
· FHA Secure Refinance Loan
|· Helps those with looming foreclosure because of changing interest rates.|
· FHA Reverse Mortgage
|· Benefits citizens above the age of 62 by converting home equity to income or Line of Credit.|
· Energy Efficient Mortgage
|· Current and future home owners who adopt energy saving improvements. These changes also reduce the monthly utility bills.|
· Graduated Payment Mortgage
|· Low to moderate incomes who foresee increase in their incomes in the coming 5-10 years.|
· Growing Equity Mortgage
|· Helps those who expect an increase in their income and so the payments too will increase with time.|
· FHA Loans for Condominiums
|· Helps those who buy units in condos.|
Refinance means to secure a new mortgage to clear the previous loans. This will reduce the interest rates and the monthly payments allowing more liquid cash in your hand for other purchases. People opt for refinancing when they know the value of their house is more than the mortgage value or in other words when there is a home equity.
With a dismal economic situation, it is necessary that you wise up to the financial scenario and not leave any opportunity to save money. Refinancing your mortgage is a sensible way of saving several thousand dollars which you would have otherwise paid as interest and down payment. Here is another opportunity to manage your mortgage better so that you have sufficient funds for all your needs and necessities with some to spare.
Anyone can apply for a FHA refinance loan; your original mortgage need not be a FHA loan for you to qualify. This loan too is similar to the standard refinancing loan but for the fact the loan is insured by FHA.
Once your purpose for refinancing is clear you can decide on the type of refinancing that will most suit your needs. There are two types to choose from:
When the loan amount is far greater than the remaining mortgage value of your house it is called a Cash Out Refinancing Loan. The advantage of this loan is that you will have enough cash in hand to meet any of your other needs and demands. You can avail this loan only if your original mortgage is a FHA loan. With a good home equity this loan will be helpful for a kid’s college education or even for renovating your home.
A streamline refinancing loan is a loan which is not dependent on your credit scores, income, and employment status and requires minimal paperwork. Basically the loan process is streamlined for a smooth progress from the application stage to the approval stage. Only present FHA loan holders can avail this type of loan.
Some of the very basic guidelines that have to be adhered to in streamline refinancing are:
When you meet all the above criteria you can be considered FHA streamline refinance eligible.
It means exactly what it says in the sense that the FHA is not interested in knowing whether you are employed or not. The streamline process does not require any proof of tax returns, income slips. If you meet all the other criteria you can still avail a refinance loan. In the same vein, your income is not verified before a loan is approved.
The ease with which one can avail the FHA Streamline Refinance loan has made it immensely popular with the masses. Like with all good things, this program too has its own advantages and disadvantages.
The Streamline refinancing is beneficial for FHA and the borrowers alike. FHA benefits because it can create a money pool while the borrower’s benefits by paying lower monthly payments. This method also ensures that loan defaulters are few.
1. No Cash out: With the FHA streamline Refinancing you cannot cash out on the home equity to clear some other debt.
2. You cannot default: To utilize the FHA streamline refinance program u must be up-to-date with your mortgage loans.
3. Costly closing costs: Closing costs often involve the transaction fee to the lender, the documentation fee and the administrative fees. This often adds up to a substantial amount. You can consider zero cost FHA streamline refinance; the interest rates will be high though. As a result you must be sure that refinancing is a better option when compared to conventional mortgage.
The main motive of the FHA is to insure mortgages and not make new ones. The simplified guidelines ensure that even unemployed with zero income, no home equity and terrible credit score are eligible for a loan. On top of that the absence of appraisal and the minimal paperwork involved ensures that the borrower is not waiting for a long time for the loan to reach his hand making it a popular choice.
These changes to the conventional mortgage system have been made to make sure that the risk involved is minimized. With minimal monthly payments and the thought of saving thousands over the long run, the borrower will tend to make the payment and not default. This in the long run is beneficial to the economy staggering under the mortgage crisis.
Finally, you need to ask yourself the question if streamline refinancing is really worth it? Does it serve the purpose you opted for in the first place? Will you get the benefits that you think you can from refinancing? All potent questions which need to be answered before you consider refinancing as an option to your mortgage woes.
Having said that, with each passing year the mortgage crisis is worsening and respite is not in sight. The unstable economy and the fluctuating interest rates make it tougher to make payments on time. At such times streamlined refinancing does seem to hold the beacon to a better future which is free of debt.
But remember that without proper knowledge about refinancing you might do more harm than good to your financial status. It is definitely the easiest but you need to decide if it is the best option for your predicament. It is always prudent to look around for other loan options when you have home equity issues.