You Make Smart Financial Moves When You Refinance Your Mortgage Right

Why FHA Is the Best Refinance Mortgage for People with a History of Credit Problems

People who have past credit problems like late payments, low scores or even bad debt, should not feel as if they cannot get a mortgage. The Federal Housing authority (FHA) guarantees mortgage loans with the full faith and credit of the US government. This means that many lenders are willing to provide home loans to many credit-challenged borrowers. If you are searching for a FHA mortgage for people with bad credit then I commend you because you still have hope there are programs available to save you money in regards to your housing expenses and financial commitments. Certainly if you don't believe there is a chance a lender will approve you, then you won't be willing to do the leg-work to refinance your home.

The Federal Housing Administration is willing to insure refinance loans for people with lower credit scores. Read on to learn more about why FHA can be a viable option to secure a better interest rate and a lower monthly payment.

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About FHA Refinancing

An FHA refinance pays off your original mortgage and creates another loan, usually with a lower interest rate. This is a major benefit for home owners with a past history of credit problems as you can save hundreds of dollars per month!

Many people who want to refinance also may be able to do so with an FHA mortgage even with a recent bankruptcy. Yes FHA encourages people to apply for a refinance 2-years after a bankruptcy discharge. Of course you will need to meet the standards outlined on a mortgage for people with bad credit. An FHA lien may be refinanced and still be an insured by the Federal Housing Administration. Homeowners also may refinance FHA mortgages into a conventional loan if they are able to qualify. Homeowners who want to refinance a FHA loan into another mortgage insured by the Federal Housing Administration could qualify for what is called a streamline refinance.

About Streamline Refinancing

This is an option for loans backed by the FHA that will reduce the documentation that you need to refinance and get a lower interest rate. A streamline refinance also can help people with past credit problems because the reduced paperwork can save you money in closing costs. Who doesn't like to walk away from closing having saved $1000 or $2000?

Regular refinances usually have similar documentation steps to getting the original mortgage. However, the streamline refinance usually does not even require an appraisal. There will be some closing costs, but they should indeed be lower than normal.

Note that streamline refinancing is not available to every borrower who has an FHA mortgage:

  • The original loan has to have been guaranteed by FHA
  • The original mortgage must have up to date payments
  • The streamline refi has to give you a lower monthly payment
  • You may not cash out with an FHA streamline

About Full FHA Refinances

If you opt for a full FHA refinance, these are not streamlined and there are two types available;

Find out what the maximum loan amount is in your area for a FHA loan.

Cash Out: This refi loan allows a borrower with a lower credit score to refinance their FHA loan for up to the maximum LTV amount, as established by the FHA and lender. Homeowners may get cash for the equity in the home by doing a refi for more than what is owed. The cash from the refi can be used for paying off credit card debt, which can be a huge benefit to many people with past credit problems: The interest rate on an FHA loan will always be much lower than any unsecured debt credit card. A cash out refi with an FHA loan also can be used to pay for college expenses or other major life needs. Maybe you don't even have to refinance to get cash. Did you ever consider other possible options? Refinance for Cash or Take Out a 2nd Mortgage?

No Cash Out: This is a very simple refi that does not have any cash proceeds going to the borrower. This refinance is a good option for people with past credit issues who just want to get a lower interest rate or possibly increasing the loan term. Another option here is to decrease the length of the loan to reduce interest charges, which can save borrowers tens of thousands in interest over the loan's term.

About Conventional to FHA Refi

Homeowners who want to refinance also can refi a conventional loan into an FHA backed loan if you are able to qualify based upon the lender's standards. This type of refinance also is a major benefit because the FHA has lower lending standards and more flexible underwriting, plus the interest rate can be much lower. FHA has a long history of approving bad credit refinance mortgages when it makes sense because the applicant has strong credentials beyond the credit report. That's why many people who used to have good credit scores need to consider FHA when refinancing after they made late payments that lowered the score on the credit report. So if you lender that did your original mortgage tells you that they can't help you refinance because of bad credit it doesn't mean another company that is FHA approved can't help you.

About FHA Closing Costs

A common deterrent to buying a home or refinancing is closing costs. If a person does not have the cash to close the loan, FHA has special programs that will help you to finance most of the costs. You also may ask if the seller will pay part of the closing costs, which can cut your financial burden in a major way.

Something to Think About with FHA Refinances

FHA home loans have helped many American consumers buy their own home and also have helped millions of people to refinance into lower cost loans. Anyone who has a current conventional mortgage and is having trouble qualifying for a conventional refinance, you should strongly consider an FHA refinance. Approval requirements for an FHA refinance are more flexible than conventional lenders. Also, the lower interest rate that you get with an FHA refi can save you thousands over the term of the loan.

Article was written by Jenifer Stone

FHA bad credit

We invite you to take another look at new mortgage refinance programs that were previously unavailable to homeowners with credit problems. Nobody can say that FHA doesn't try to approve mortgages for people with bad credit.

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