This BLOG On Refinancing FHA Loan To Conventional Loan To Eliminate FHA MIP Was PUBLISHED On June 29th, 2020
FHA Loans are the most popular mortgage loans today.
- FHA Loans are not just for borrower’s with bad credit
- There are times where borrowers with great credit and stable income with job longevity needs to go with an FHA Loan instead of Conventional Loan
- This is often due to the fact that they may have a higher debt to income ratios, recent bankruptcy, recent foreclosure, recent short sale, recent deed in lieu of foreclosure, or other factors that affect them in qualifying for conforming loans
- The Federal Housing Administration, FHA, is a subsidiary of the United States Department of Housing and Urban Development ( HUD ), is in charge of all the rules and regulations of FHA Loans
- FHA does not originate nor fund FHA Loans
- FHA’s role is to insure FHA Loans that are originated and funded by FHA approved lenders
- FHA approved lenders are private lenders such as banks and mortgage bankers who are HUD-approved and meet all standards set by HUD
- What happens is lenders will originate, process, underwrite, and fund FHA loans as long as the borrower meets all of FHA lending guidelines
- Once lender funds the Home Loan, HUD will insure lenders in the event borrower defaults on his or her FHA Loan
- In order for FHA to insure lenders against borrower’s default, the Loan needs to have met all of the guidelines set by HUD when the Loan was originated and funded
In this article, we will discuss and cover Refinancing FHA Loan To Conventional Loan To Eliminate FHA MIP.
Refinancing FHA Loan To Conventional Loan: FHA Mortgage Insurance Premium
The biggest negative factor with FHA Loans is the pricey FHA mortgage insurance premium.
- FHA mortgage insurance premium is mandatory for all 30-year fixed rate FHA Loans
- This holds true regardless of the loan to value
There are two types of FHA mortgage insurance premiums
- The upfront FHA mortgage insurance premium of 1.75% of the loan balance is a one time charge that all borrowers have to pay but this cost can be rolled into the balance of the mortgage loan
- The second FHA mortgage insurance premium borrowers need to pay is the annual FHA mortgage insurance premium which is 0.85% of the mortgage balance
- The annual FHA mortgage insurance premium is held by lenders in an escrow account along with the homeowners insure
This is part of the borrower’s monthly mortgage payment:
- The only way it can be canceled is by paying off the FHA Loan or by Refinancing FHA Loan To Conventional Loan
The main reason most homeowners consider refinancing FHA Loan To Conventional Loan is mainly due to eliminating the pricey FHA Mortgage Insurance Premium to save money.
How Do I Go About Refinancing FHA Loan To Conventional Loan
If a homeowner purchased their home with an FHA Loan and can now qualify for a conventional loan, they can consider whether it will benefit them by refinancing FHA Loan To Conventional Loan.
- One of the most important factors with conventional loans is that they are credit-sensitive unlike FHA Loans
- For example, for borrowers to get the best mortgage rates, they need a 740 credit score with at least 20% equity in their home
- The lower the credit scores, the higher the mortgage rates will be
- The fewer equity homeowners have, the higher the rates
- Any conventional loan with less than 20% equity will require private mortgage insurance
However, unlike FHA Loans, if the home appreciates in value and homeowners have at least 20% or more in equity due to appreciation of their home, private mortgage insurance can be canceled.
Other Reasons For Homeowners To Refinance
Why refinance FHA Loan To Conventional Loan if homeowners still have to pay for private mortgage insurance and still have less than 20% equity in their home?
- The reason is that private mortgage insurance premiums are a fraction of the 0.85% annual FHA mortgage insurance premium for borrowers with higher credit scores
- Private mortgage insurance can be canceled once homeowners have 20% equity in their home
With FHA’s annual mortgage insurance premium, the mortgage insurance cannot be canceled no matter how much equity homeowners have.
Conventional Mortgage Rates Versus FHA Mortgage Rates
FHA mortgage rates are substantially lower than conventional mortgage rates. This is because FHA loans are insured by the Federal Housing Administration against the borrower’s default. Although conventional mortgage rates may be higher than FHA mortgage rates, it may be beneficial for homeowners to refinance FHA Loan To Conventional Loan due to the high FHA annual mortgage insurance premium. The loan officer will go over a full comparison and analysis to see whether Refinancing FHA Loan To Conventional Loan will be beneficial to homeowners. In order to be able to refinance a homeowner, the homeowner needs to get a net tangible benefit from refinancing. Loan officers can go over how much money borrowers can save over the term of their mortgage loan. Homeowners considering refinancing FHA Loan To Conventional Loan should contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at email@example.com. We can run a free analysis for homeowners and get a full net tangible benefit analysis. Borrowers lower credit scores, we advise them on maximizing their credit scores prior to refinancing FHA Loan To Conventional Loan so they can get the best conventional mortgage rates.
June 29, 2020 - 4 min read