Refinancing an FHA loan
October 4, 2012 8:37 AM Subscribe
Advice on re-financing an FHA loan?
My wife and I are thinking of re-financing our FHA loan. We bought our house in May 2009 with one with (roughly) a 5.4% interest rate. We've been contacted by several companies offering to refinance for us, but this company seems to offer the most that fits are needs. Basically, we're looking for the lowest upfront cost out of our pocket (and they claim no closing costs).
Is this company reputable? Is there someone else we should check out? Other things we should consider or watch out for?
My wife and I are thinking of re-financing our FHA loan. We bought our house in May 2009 with one with (roughly) a 5.4% interest rate. We've been contacted by several companies offering to refinance for us, but this company seems to offer the most that fits are needs. Basically, we're looking for the lowest upfront cost out of our pocket (and they claim no closing costs).
Is this company reputable? Is there someone else we should check out? Other things we should consider or watch out for?
I don't know anything about this particular company, but the first thing I saw was an ad for a reverse mortgage, so I'm already suspicious.
FHA has a streamlined loan, where you don't go through an approval process, but you do pay closing costs. You don't have to have equity in your home to re-fi.
Typically the math is, what's the monthly savings versus what the closing costs are divided by how long you expect to stay in the house.
If your pay back period is less than the time you expect to stay in the house, then it's worth doing, if you don't then it isn't.
All mortgages have closings costs, some will allow you to roll them into the loan. So if you owe $150,000 on your loan, and your closing costs are $3,000, then the new mortage will be for $153,000.
Another thing that you need to think about is the amoritization schedule. Since you've only been paying for about 3 years, you're not really touching much of the principle of your loan yet, most of your mortgage payment is going to interest.
When you refinance, you reset the clock, therefore the length of your loan is extended, and you pay that much more interest, before paying down the principle.
posted by Ruthless Bunny at 8:52 AM on October 4, 2012
FHA has a streamlined loan, where you don't go through an approval process, but you do pay closing costs. You don't have to have equity in your home to re-fi.
Typically the math is, what's the monthly savings versus what the closing costs are divided by how long you expect to stay in the house.
If your pay back period is less than the time you expect to stay in the house, then it's worth doing, if you don't then it isn't.
All mortgages have closings costs, some will allow you to roll them into the loan. So if you owe $150,000 on your loan, and your closing costs are $3,000, then the new mortage will be for $153,000.
Another thing that you need to think about is the amoritization schedule. Since you've only been paying for about 3 years, you're not really touching much of the principle of your loan yet, most of your mortgage payment is going to interest.
When you refinance, you reset the clock, therefore the length of your loan is extended, and you pay that much more interest, before paying down the principle.
posted by Ruthless Bunny at 8:52 AM on October 4, 2012
Quicken Loans, without a doubt, is fast and inexpensive, and the company's reps are friendly and professional, but I wouldn't describe their loan process--or any bank's in this day and age, for that matter--as painless. The post-Lehman regulations and paperwork requirements of banks can make the document review process quite arduous. Quicken Loans may be your best lender to approach first, and you can certainly beat the 5.4% interest rate--by a mile. But if you're allergic to paperwork, you'll be an unhappy camper through the application process. When banks tell you over the phone that their application procedure is easy, don't believe them. It isn't.
posted by Gordion Knott at 8:53 AM on October 4, 2012
posted by Gordion Knott at 8:53 AM on October 4, 2012
Nthing the above points that:
-the reverse mortgage promo on that site says "skeevy" to me
-Quicken Loans is super fast and easy. And for FHA loans they have a fast track no appraisal option. (I haven't used that. Just the regular refi.)
posted by dayintoday at 9:05 AM on October 4, 2012
-the reverse mortgage promo on that site says "skeevy" to me
-Quicken Loans is super fast and easy. And for FHA loans they have a fast track no appraisal option. (I haven't used that. Just the regular refi.)
posted by dayintoday at 9:05 AM on October 4, 2012
Don't buy financial services from any company that contacts you out of the blue. Do your own research using sites like bankrate.com and pick a reputable company.
posted by monotreme at 9:37 AM on October 4, 2012 [3 favorites]
posted by monotreme at 9:37 AM on October 4, 2012 [3 favorites]
Seconding the bankrate.com research. Watch out for the companies claiming no closing costs rolling it into your new mortgage.
I just refied my FHA loan with supreme lending and they were awesome. I did everything over email. Never had a single phone call with them until the day of closing.
The rates change daily/weekly as do what lender can offer you the best deal.
posted by zephyr_words at 1:40 PM on October 4, 2012
I just refied my FHA loan with supreme lending and they were awesome. I did everything over email. Never had a single phone call with them until the day of closing.
The rates change daily/weekly as do what lender can offer you the best deal.
posted by zephyr_words at 1:40 PM on October 4, 2012
Before you refi, call your current lender and ask what date your loan was insured (if they can't answer that, you can also try FHA directly at 1-800-Call-FHA). If your loan was insured before May 31, 2009, you should be looking at an FHA streamline (unless you have 20% equity); FHA loans insured before that date can be streamline refinanced with a very favorable mortgage insurance structure. There is nothing on the market that can beat it. Even if you were insured after that date, a streamline is still a good option but not quite as cheap.
A nice thing about streamlines is that FHA sets a lot of rules about how the loans are structured and priced, so they are easy to compare from one lender to another. It is true that you cannot finance closing costs on a streamline, but the lender can cover them with a credit for a slightly higher interest rate (this probably what JB Nutter is offering). You can call a couple of lenders (including your current one) and ask what the rate would be for a streamline with a lender credit covering all settlement charges. I would guess you'll see quotes between 3.5% and 4.0%. Then you can do the math as Ruthless Bunny notes above.
The other nice thing is that streamlines don't require an appraisal. But if you've got a little bit of equity & pretty solid credit, then you should also get quotes for a conventional.
posted by tinymojo at 9:31 PM on October 4, 2012
A nice thing about streamlines is that FHA sets a lot of rules about how the loans are structured and priced, so they are easy to compare from one lender to another. It is true that you cannot finance closing costs on a streamline, but the lender can cover them with a credit for a slightly higher interest rate (this probably what JB Nutter is offering). You can call a couple of lenders (including your current one) and ask what the rate would be for a streamline with a lender credit covering all settlement charges. I would guess you'll see quotes between 3.5% and 4.0%. Then you can do the math as Ruthless Bunny notes above.
The other nice thing is that streamlines don't require an appraisal. But if you've got a little bit of equity & pretty solid credit, then you should also get quotes for a conventional.
posted by tinymojo at 9:31 PM on October 4, 2012
Response by poster: We closed on the 28th of May, 2009. I'll check when the loan was insured though.
posted by drezdn at 7:12 AM on October 5, 2012
posted by drezdn at 7:12 AM on October 5, 2012
Response by poster: This make it sounds like it probably wouldn't have been endorsed by then. I'll have to call to make sure though. Thanks, tinymojo.
posted by drezdn at 7:20 AM on October 5, 2012
posted by drezdn at 7:20 AM on October 5, 2012
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posted by hippybear at 8:47 AM on October 4, 2012 [1 favorite]