Refinancing FHA To Conventional Loan

Refinancing FHA To Conventional Loan Eliminating FHA MIP

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers refinancing FHA to conventional loan eliminating FHA mortgage insurance premiums. Home sales are hot throughout the United States. Homes in Florida, California, Illinois, Virginia, Texas, Georgia, Indiana, Wisconsin, Washington, and the United States have appreciated double digits in the past 24 months. Dale Elenteny, a senior mortgage loan advisor at Gustan Cho Associates, explains refinancing FHA to conventional loan eliminating FHA MIP as follows:

The housing market remains strong. It seems the demand is strong, with no indication of a slowdown. Homeowners who purchased homes a few years ago should consider refinancing FHA to Conventional loan and see if they can avoid paying the expensive FHA mortgage insurance premium.

Most of my pre-approved mortgage clients are having an extremely hard time finding a property they like, and when they do, multi-home purchase offers and bidding wars are most likely to happen.  With homes appreciating how they are, many homeowners who purchased their homes in the past few years may qualify for refinancing FHA To Conventional loan and eliminate their FHA mortgage insurance premium. Even if homes did not appreciate 20%, there are conventional mortgage loan programs with Lender Paid Mortgage Insurance.  LENDER PAID MORTGAGE INSURANCE, or LPMI, for a slightly higher mortgage rate. The conventional borrower is not required to pay private mortgage insurance. Not all lenders offer LPMI. But for those that do, it is a great product and can offer a homeowner tens of thousands of dollars of savings over their mortgage term.

Why Refinancing Can Benefit Homeowners

Why Refinancing Can Benefit HomeownersMany homeowners went through the wringer when they went through their mortgage loan application process. The last thing they want to even think about is going through the mortgage application process all over again. However, refinancing can help a homeowner save tens of thousands of dollars over the life of their mortgage loan term. Getting a free, no-obligation cost analysis from a lender and seeing potential savings cannot hurt. A lender is highly regulated. Federal laws mandate borrowers need to have tangible net benefits for the mortgage loan originator to pursue refinancing applicant’s refinancing mortgage loan applications. There needs to be a 5% payment savings on the loan applicant’s monthly payments to be considered a net tangible benefit for the borrower.

Refinancing FHA To Conventional Loan Eliminating FHA Mortgage Insurance Premium

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FHA’s annual mortgage insurance premium is 0.55% of the loan amount. Those with a 30-year fixed-rate FHA loan after mid-2013 cannot cancel their FHA loan until the loan is paid off or refinanced. On a $200,000 home purchase FHA loan, the mortgage note holder pays 88 per month in FHA mortgage insurance premium, which is 0.55% of the $193,000 FHA loan balance divided by 12 months. $88 monthly based on a $200,000 home purchase with a 3.5% down payment at a 7.0% mortgage rate.

Many homeowners may not realize that their homes may have appreciated 20% or more in the past several years. Many homeowners purchased their homes after the financial and real estate collapse of 2008, and properties have steadily increased in value year after year. Even if their homes have not appreciated 20%, the Lender Paid Mortgage Insurance program on conventional loans offers no private mortgage insurance required by the borrower for a slightly higher rate. 

Conventional mortgage rates for prime borrowers with higher credit scores are 6.875%. 15-year fixed conventional mortgage rates are below 6.125%. FHA mortgage insurance premiums can no longer be deducted and claimed as a tax deduction. Even if the homeowner elects to pay private mortgage insurance, private mortgage insurance on conventional loan programs can be as low as a third of the FHA mortgage insurance premium. Mortgage insurance premiums are no longer tax deductible, but mortgage interest still is tax deductible, so Refinancing FHA To Conventional Loan makes sense.

Conventional Loan Programs Have Stricter Lending Guidelines

Conventional Loan Programs Have Stricter Lending GuidelinesConventional loan programs have stricter mortgage lending guidelines, and not everyone with an FHA loan can refinance their FHA loan into a Conventional loan. For example, the waiting periods for conventional loans after a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or short sale differ from those of waiting periods on FHA loans. A mandatory waiting period is four years after a bankruptcy discharge to qualify for a conventional loan. Whereas for FHA loans, the waiting period is two years after a bankruptcy discharge. The waiting period after a foreclosure to qualify for a conventional loan is seven years, whereas the waiting period after a foreclosure is three years for an FHA loan. Waiting periods after a deed-in-lieu of foreclosure or short sale for a conventional loan is four years. Need 5% equity or down payment for a home purchase. HUD allows a three-year waiting period after a deed-in-lieu of foreclosure or short sale.

Refinancing FHA To Conventional Loan: How Long Do You Intend To Living In Your Current Home?

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Closing costs are associated with refinancing FHA to conventional loan. Your mortgage loan originator can review your break-even point refinancing FHA to conventional loan. The break-even point is where how much you will be saving on your monthly payments with your refinance mortgage loan and how long it will take those savings to cover your closing costs. For example, if your closing costs on your refinancing are $3,000 and your payments are reduced by $300 per month after your refinancing, then it will take you ten months to recoup your $3,000, and thereafter, your actual savings start. Refinancing may not be wise if you plan on selling your home in ten months or less.. Discuss your intention with your mortgage loan originator, and he or she will guide you in the right direction.

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