Many people wonder if now is the time to refinance. Interest rates are at a historic low right now and they wont stay for long! The federal reserve has indicated that they will discontinue their mortgage backed securities purchase program at the end of March. The program is one of the biggest reasons we have enjoyed these low rates over the past year and a half. If you are planning on being in your house for the next 3-5 years you should definitely consider a refinance. I will provide some information to consider when trying to decide if you should get and FHA loan or Conventional mortgage.
FHA Mortgage Financing-
FHA financing is very flexible and relatively easy to obtain. For starters, FHA doesn’t require a perfect credit score. 620 is generally considered a minimum score, but it is possible to get a loan with no credit score. Here are the other benefits of an FHA loan:
- Allow for high debt to income ratios (total monthly debt can be as much as 60% of gross monthly income)
- Borrow up to 97% of your homes value when paying off an existing mortgage
- Get up to 85% of your homes value when getting cash back at closing
- Same rate regardless of credit score
Conventional Financing-
Conventional financing is good solution if you have some equity in your home. In most cases you will need to have a credit score above 620, but in order to get the best rate, it needs to be above 740. Here is a list of the benefits of using a conventional loan when refinancing:
- No Private Mortgage Insurance (PMI) required when you have at least 20% equity
- PMI required when borrowing between 80.1 and 95% of your homes value but can be eliminated
- Slightly lower rates than FHA (significantly higher if your credit score is low)
- Interest only and adjustable rate options available (great if you plan to sell within 5-7 years)
There are plenty of options available when considering a refinance: No cost refi, low cost refi, paying closing costs, financing closing costs, etc. Its most important to talk to someone at a reputable company to determine if now is the time for you to refinance. I have helped numerous homeowners with their refinance as well as advised others that they shouldn’t refinance. I am always willing to meet and discuss potential options.
Dale Winters
