Refinancing your Atlanta mortgage can mean you pay less out-of-pocket each month, pay a lower interest rate and pay less over the life of your entire home loan. However, there might be a few barriers for the average borrower when it comes to refinancing, namely your credit score and the current value of your home compared to the amount you owe.
If you are worried you won’t qualify for a conventional refinancing program, an FHA Streamline loan might be the perfect option for you. There are a few key differences between an FHA refinance and a conventional loan refinance that make it more suitable for certain borrowers.
At BrightPath, an Atlanta mortgage company, we’re here to provide some insight on the comparison between both an FHA Streamline refinance and a conventional loan to help you make the best decision for you.
FHA Loan Required
One of the biggest differences between an FHA Streamline refinance and a conventional loan is that to qualify for the FHA program, your mortgage already needs to be insured by the Federal Housing Administration. Along with having an FHA mortgage, you also need to be up to date on your payments and have owned the property for at least six months.
Know Your Home’s Value
Usually, when you refinance your mortgage, the amount of the loan needs to be 80 percent or less than your home’s value. If the new loan is worth more than 80 percent of your home’s value, you might have to pay mortgage insurance or the lender might turn you down, thinking you’re too much of a risk. With an FHA Streamline refinance, the loan to value ratio of the home matters less, since the mortgage typically doesn’t require an appraisal.
While you might be able to qualify for an FHA refinance when the value of your home is less than the amount of the loan, you generally can’t use the refinancing program to borrow more money. That means that if your home has increased in value since you purchased it, you can’t take advantage of that if you go the FHA route.
Lower Credit Score
Your credit score matters less when applying for an FHA refinance than it does for a conventional refinance. The US Department of Housing and Urban Development typically doesn’t require a credit report when issuing an FHA loan, which means you might be able to qualify for a refinance even if your credit is less than stellar. However, always look at your different loan options.
At BrightPath, we offer both FHA Streamline loans and conventional loans that both have lower credit score requirements. And because a conventional loan is not backed by the FHA, it can have lower interest rates.
Appraisal and Other Issues
Just because an appraisal and credit check aren’t always required doesn’t mean every FHA refinance excludes them. There are times when having your home appraised before an FHA Streamline can work in your favor. If you want to roll the closing costs into the mortgage, then an appraisal is necessary, for example. You might also need to have a credit check if you hope to borrow more than the original amount of the loan.
FHA mortgage programs aren’t for everyone—especially if you’re looking for the lowest interest payment. However, if you qualify for the refinance program, you might find that it offers a good way to save on your mortgage without a lot of fuss or hassle.
For more information on which loan is right for you contact the Atlanta mortgage team at BrightPath today so you can be on your way to refinancing your home in the best way possible!