There are many potential benefits to refinancing your mortgage loan. Refinancing allows you to take advantage of superior loan rates, for example, or to change the term of your loan. You can also change the type of loan you have—for instance, refinancing an FHA loan into a conventional one. Is this type of switch the right fit for you or are you better off sticking with the FHA? Let’s take a look…
Understanding FHA and Conventional Loans
Before we answer that question, let’s define these terms a little more clearly. FHA loans come with less stringent down payment requirements than conventional loans—most of which require 20 percent. FHA loans require as little as 3 percent down, which makes them especially popular among first-time homeowners.
The downside? The FHA requires the borrower to make a one-time upfront payment on mortgage insurance; 1.75 percent of the total loan value. Additional annual premiums are typically required as well.
Switching to a Conventional Loan
Refinancing to a conventional loan will likely mean you won’t have to pay any more of those additional insurance premiums—especially not if you’ve put more than 20 percent equity into the home. This will likely make your monthly payments lower, and thus give you a little more financial freedom. Which is the main reason most people want to refinance in the first place.
Now, there are potentially some drawbacks. As with most refinances, you’ll probably have to pay closing costs up front, which could amount to anywhere from two to five percent of the total loan amount. Also note that, if you haven’t built up that 20 percent equity, you’ll probably have to purchase private mortgage insurance after all.
Is Refinancing Right for You?
As always, the decision to refinance requires you to consider several different factors. Are rates more favorable? Do you have enough money on hand for closing costs? And do you have sufficient equity in the home to make the move to a conventional loan worthwhile?
The best way to tackle these questions is to sit down with a loan expert and run some numbers, then look at specific loan products that might work to your advantage.
We’d love to help you do that, and to walk you through the ins and outs of refinancing from an FHA loan to a conventional loan. To start this conversation, we encourage you to reach out to the team at Loan Fleet. We’re ready to answer all of your questions and offer professional guidance.