Editor's choice: SoFi(NMLS #1121636)
- Prequalify without affecting your credit score
- Flexible terms beyond traditional 15- and 30-years
- Not available in: AK, HI, MO, NH, NM, NY, SD, WV
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Like many homeowners, you may have purchased your first home with an FHA loan. If you’re ready to refinance, find out if you should go for another FHA loan, a conventional mortgage or do a cash-out refinance.
Probably. But how you refinance depends on your circumstances. Your three options are:
If you have an FHA loan, you may be able to refinance and convert it into a conventional mortgage. With a conventional refinance, you can shorten your loan term and potentially shed private mortgage insurance (PMI). You could even refinance from an adjustable-rate to a fixed-rate mortgage.
Many homeowners opt for a conventional refinance because there are no mortgage insurance premiums (MIP) if you’ve built 20% equity in your home.
If you’ve made at least six monthly payments and your loan-to-value ratio is at most 80%, you may be eligible for an FHA streamline refinance. Since the original home loan was FHA-insured, lenders may feel more comfortable refinancing the loan.
You can typically expect less paperwork, less scrutiny about your income and looser credit requirements than conventional loans. Depending on how long you’ve had the loan, you might also be able to skip the home appraisal. Streamline refinancing can lower your interest rate and monthly payment, but you’ll still need to make annual MIP payments.
Has your property value increased since you purchased it? Do you need some extra cash for a large expense like a home renovation or to pay for college tuition? A cash-out refinance might suit you.
If you have at least 20% equity in your home based on a new appraisal, you can refinance your existing loan by taking out another mortgage for more than what you owe. Then, you can tap into your property’s equity and withdraw a lump sum.
You can choose a conventional or an FHA cash-out refinance.
|Conventional cash-out||FHA cash-out|
|Occupancy||Primary, second home, investment||Primary|
|Maximum loan-to-value (LTV) ratio||80%||80%|
|Minimum credit score||620, though lenders prefer 640||500, though lenders prefer 580|
|Maximum debt-to-income (DTI) ratio||45%, higher with six months reserves||43%, higher with compensating factors like a high credit score|
The refinancing process tends to take a few weeks, but varies depending on your lender and loan type. Expect to go through these steps:
Refinancing might make financial sense if you:
To refinance to a conventional loan, you’ll need at least 3% equity in your home. For a cash-out refinance, 20% is the magic number. If you want to get rid of private mortgage insurance, you’ll have to wait until you build up 20% equity or more.
If it’s been at least 210 days since your last closing date, you can apply for an FHA streamline refinance. These are issued by private lenders and backed by mortgage insurance, so the process tends to be quicker. In most cases, you won’t need to verify your income, employment or credit, or get a home appraisal.
Always read the fine print. Some obstacles you may come across are:
Refinancing can help reduce your mortgage payments and interest rate. With FHA loans, you have three options for refinancing: conventional, FHA streamline and cash-out refinance.
Since refinancing fees vary, take the time to compare mortgage lenders.
Unifimoney lets you spend, save and invest, but it’s only free for high-income individuals.
Find out how to increase your borrowing power and get approved for a mortgage even if you have a car loan.
Check out these Fundrise competitors.
Learn about what will happen to your home loan when you die and how to avoid any nasty situations with some pre-planning.
Check out our guide on the differences between mortgage brokers and bank loan officers. See which one will suit your needs.
Some lenders will approve a home loan even though you’re not receiving a permanent income. However, you’ll need to undergo some assessments.
Which is right for you?
A 101 guide covering the types of mortgage loans every homebuyer should know.
Explore the options and programs that Canada has in place to help you move to Canada.
If you’re on the hunt for a broker similar to Thinkorswim, check out these 5 options.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.