Refinancing Your Home with an FHA Loan

If you're looking to refinance your existing mortgage, you've basically got the choice between conventional refinancing and FHA refinancing. The main advantage to refinancing using an FHA loan has to do with cash out type loans. Why else choose an FHA loan to refinance your home?

• More Cash Out
• Easier to Qualify For
• Higher Loan to Values

Conventional loans have much more strict guidelines when it comes to the allowable loan to values (LTV). FHA will allow cash out refinancing up to 95% LTV. This is higher than non-government loans that only allow lower LTV's and actually require higher credit scores to qualify. For example, one borrower might be able to finance up to 85% LTV on a cash out refinance with a conventional loan, and 95% with an FHA loan. See below for a breakdown of what that might mean.

Loan Amount = $200,000

85% LTV = $170,000 (conventional loan limit)
95% LTV = $190,000 (FHA loan limit)

As you can see from the example, choosing the FHA loan over the conventional loan could mean you would be to take out an additional $20,000 ($190,000 - $170,000 = $20,000).

Most FHA loans require an up-front mortgage insurance premium (UFMIP) as well as monthly mortgage insurance premiums.

NOTE: Current FHA mortgage insurance premiums and UFMIP

The UFMIP is equal to 1.25% - 2.25% of the loan amount and can be financed in the loan. The monthly insurance premium can be figured by multiplying the loan amount by .55% and dividing by 12 (months in a year). For example, to calculate the monthly MIP (mortgage insurance premium) on a $230,000 mortgage, you would perform the following calculation:

($230,000 × .0055) / 12 months = $105.41/month

If you think an FHA refinance loan might be right for you, ask a BeatMyBroker.com mortgage professional for more information. You should always compare conventional loans to government loans like FHA mortgages to see which one has the most benefits and fits your needs.