Let’s look at the positives; at least you’re not trying to refinance a conventional mortgage! FHA loans have been made more easy to qualify for than they were a few years ago thanks to recent legislation. Typically one of the largest disqualifying factors is the homeowners credit score. The Federal Housing Administration (FHA) requires a minimum credit score of 620 but good luck finding a lender willing to extend you a loan. Currently you’ll need a score anywhere north of 640.
In the past a low credit score plainly meant that you’d need to pay a higher interest rate, but these days it could mean facing the possibility of losing your home. If you find yourself struggling or unable to make your monthly mortgage, there is help out there. There are a handful of programs for struggling FHA homeowners. Check out www.HUD.gov for a comprehensive list as well as pertinent information.
By improving your credit rating you could qualify for a streamline refinance of your home. Yes, it is called a streamline because it is way more simplistic than a conventional refinance. It would be in your best interest to speak with a licensed mortgage professional to have your credit analyzed within the framework of the mortgage world. One piece of advice, avoid missing your mortgage payments if at all possible.
When refinancing, consider the various loan options available:
Fixed Rate Mortgages – The interest rate will never changed no matter what
• 15 Year Mortgage – You will have a higher monthly mortgage payment but can save tens of thousands on interest.
• 30 Year Mortgage – The most widely used loan.
• 40 Year Mortgage – You’ll have a low monthly payment but will pay a lot more in interest in the long run.
Adjustable Rate Mortgages (ARM’s) – The interest rate will stay fixed for an established amount of time and then adjust to the interest rate available at the time of adjustment, typically every year
• 1 and 3 year loans – These are great for homeowners who know they will be able to pay a higher mortgage payment in 1 to 3 years; say someone about to graduate from college into a stable career field.
• 5 to 7 year loans – These will give you a bit more time to save up cash or qualify for a non-ARM loan. But there is no telling where interest rates will be 5 to 7 years down the road and can be a bit of a gamble.
Few last tips: Keep in mind; adjustable rate mortgages almost never build equity in a home. Also remember, the credit score of each and every person on the current mortgage needs to be able to qualify for the refinance. Rules are rules.