How Soon Can a Person Refinance an FHA Loan?
FHA loans are a great way to finance a home. However, homeowners with high interest rates can benefit by refinancing their FHA loan to a lower interest rate--but refinancing is not always the best scenario for all FHA loans. Knowing when to refinance an FHA loan is crucial to getting the best deal available.
Other People Are Reading
-
Requirements
-
Refinancing an FHA loan comes with certain requirements in order to qualify for FHA refinancing. The current mortgage must be paid current and up to date with no late payments occurring in the prior year. The refinance amount must lower the principal balance of the mortgage and result in a lower interest rate. The refinanced mortgage must meet the underwriting guidelines set forth by the FHA. These guidelines are subject to change at any time.
Appraisal and Equity
-
When applying for an FHA refinance, a homeowner must demonstrate at least 20% equity in the home. Equity is determined by an independent appraiser, who will take into account the current market value of a property and the loan balance. The loan balance is subtracted from the current market value to determine the equity in the property. The equity must equal 20% of the property value in order to qualify for a refinance.
-
Closing Costs
-
Just like a home purchase, a refinance will incur closing costs for the homeowner. These costs will consist of all the fees that a lender will charge for the processing and paperwork preparation for the home refinance. This amount can vary and is set by the lender. Typical closing costs amount to 3% of the loan amount.
Time Frame
-
Although there is not a set time frame on when you can apply for an FHA refinance on your mortgage, it will take the average homeowner at least six years to gain the required equity in the property that is required for an FHA loan refinance approval. For homeowners living in states where property values are quickly appreciating, this time could be less.
Benefits
-
FHA loan refinance programs can help homeowners save substantial amounts on their interest rate, which can translate into thousands of dollars over time that they will save on high interest rate payments. However, refinancing a mortgage to save less than a full interest rate point isn't going to be worth it in the long term. Take into consideration how long you are planning to own and live in the home when considering whether a refinance will benefit you in the long term.
-
