Researching home loans can be exhausting—whether you already own your home or are in the market to purchase your first one. There are so many questions. For example, should you get a conventional home loan or a FHA mortgage? Or should you use FHA Streamline to refinance? Which is the best option? What will save you the most money in the long run?
The choices can be overwhelming. However, understanding the difference between your loan options can help you choose the home loan that’s right for you.
A Conventional Mortgage: The Basics
A conventional mortgage can offer a fixed or adjustable interest rate, requires a down payment of at least three percent, and requires mortgage insurance if you put down less than twenty percent. To qualify for and get the best interest rates on conventional home loans, you need to have great credit.
A conventional loan can either be a first mortgage or a refinance. If you are refinancing into a conventional mortgage, you might be able to get a lower interest rate than what you originally had. You will need to have your home appraised before the refinance, to make sure its market value isn’t lower than the amount you are borrowing.
A FHA Streamline Refinance: The Basics
Two things set a streamline refinance apart from a conventional mortgage or refinance:
- It’s only available to people with FHA loans.
- It’s a refinancing program only.
Federal Housing Administration (FHA) loans are mortgages guaranteed by the federal government. That means if a borrower defaults, the FHA assumes responsibility for the loan. If you go the FHA route with your original mortgage, you usually put down between 3.5 and five percent. You pay upfront and for monthly mortgage insurance. Your credit score matters less with an FHA loan, so it is possible to get a decent interest rate and a mortgage offer even with a score as low as 500.
Should you want to refinance your FHA loan, you can choose the streamline option, as long as your payments are current and as long as you’ve had the original mortgage for more than six months. One of the biggest advantages of a streamline refinance is that you do not have to have your home appraised first.
Which to Choose
There are several things to consider when choosing between conventional or streamline loans:
- Your existing mortgage: If you don’t have a FHA mortgage to start with, you aren’t eligible for a streamline loan.
- Closing costs: Streamline loans aren’t eligible to be no closing cost loans unless you also have the home appraised.
- How much you can put down: If you have a large down payment, going the conventional route makes more sense, as your mortgage insurance premiums will be more flexible or might not be needed at all.
- Your credit score: A low score affects your ability to get a conventional mortgage or refinance.
If you are ready to start the preapproval process or want to learn more about your refinancing options, BrightPath Mortgage’s specialists are waiting to help you. Contact us today for more information.
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