The FHA is the largest insurer of mortgages in the world.
FHA loan programs are often used by first-time homebuyers, as well as repeat buyers whose credit scores may be lower than those required for conventional mortgage loans. FHA loans were also designed for homebuyers that may not be able to afford a large down payment.
Alternatively, FHA loans may be ideal for homeowners looking to refinance but have very little equity.
ABOUT FHA MORTGAGE INSURANCE PREMIUMS
Homeowners will pay mortgage insurance with FHA loans. FHA mortgage insurance premiums (MIP) protects the lender in case of borrower default.
Two mortgage insurance premiums are required for all FHA loans – an upfront insurance premium and an annual insurance premium.
The upfront mortgage insurance premium is 1.75% of the loan amount. This premium is paid at the time of closing and can be financed as part of the loan.
The annual mortgage insurance premium is paid in monthly installments. The premium varies according to the length of the loan, the amount borrowed and initial loan-to-value ratio (LTV).
Annual premiums for FHA loans are as follows.
- 15-year term with a down payment or equity position of less than 10%: 0.7%
- 15-year term with a down payment or equity position 10% or more: 0.45%
- 30-year term with a down payment or equity position of less than 5%: 0.85%
- 30-year term with a down payment or equity position of 5% or more: 0.8%
For example, using a loan amount of $200k and a loan-to-value ratio of 95% ($200,000 multiplied .0.8% divided by 12) would result in a monthly mortgage insurance payment of $133.33.
FHA REFINANCE WITH ONLY 2.25% EQUITY
Many people think of FHA mortgage loans as a tool primarily used by first-time homebuyers. However, the FHA mortgage can also be ideal for refinancing, even when the current loan isn’t an FHA mortgage.
FHA refinance loans offer a variety of attractive features to U.S. homeowners. Not only do FHA loans offer options for low equity positions, they also have less stringent credit requirements and competitive interest rates.
A standard non-streamline FHA refinance allows you to refinance up to 97.75% of the current value of your home. Borrowers will need an appraisal to determine their home’s value, but this can be a great alternative to homeowners that do not qualify for the HARP loan.
The HARP mortgage is a refinance loan designed to help homeowners with little to no equity. However, unless your loan is owned by Freddie Mac or Fannie Mae, and was taken out prior to June 1, 2009 you may not qualify for this type of refinance.
A standard FHA refinance loan allows homeowners to combine their first mortgage and a second mortgage into one single loan, as long as the second mortgage is over 12 months old.
Homeowners can even receive up to $500 cash back at closing for a standard FHA refinance without the loan being considered an actual “cash out” loan.
CASH-OUT WITH AN FHA REFINANCE LOAN
You can also obtain a cash-out refinance with an FHA loan. As long as you have at least 15% equity remaining after your refinance (85% loan-to-value), an FHA cash-out refinance can be great way to tap into your home’s equity without having to sell the property.
FHA cash-out refinance loans can be used for a variety of purposes such as:
- Debt consolidation
- Home improvement
- Education costs
- Buying a new automobile or paying off an existing one
- Creating a nest egg for savings
FHA cash-out refinance loans are permitted as long as the homeowner has been current on their mortgage payments for the most recent 12 months.
Homeowners are permitted to cash-out refinance if they’ve lived in their home for less than 12 months, providing they’ve made at least six on-time payments. The homeowner will be limited to 85% loan-to-value based on the lesser of 85% of the appraisers estimate of value, or the sales price of the property when acquired.
Cash-out refinance loans are only permitted on owner-occupied principle residences.
FHA refinance loans have really low rates and can be great for homeowners looking for a way to refinance with little equity and less-than-perfect credit.