FHA Home Loan Options To Consider: Refi and Reverse Mortgages

March 16, 2018

FHA home loan options you should consider aren’t just for those seeking their first home, a starter home, or first condo unit. FHA mortgage loans are available for many steps in a borrower’s home ownership journey. Do you know what your FHA home loan options are aside from buying a new home in the suburbs?

FHA Mortgage Loan Options Include Refinance Loans

Yes, you can refinance an existing FHA mortgage or refinance a non-FHA mortgage into an FHA home loan. Your FHA refinance loan options are not new, but some borrowers don’t even consider their refinance options when buying a new home, and that can be a mistake. Why?
Certain kinds of refinance loans can be more advantageous depending on your financial goals and needs. For example, if you purchased a home knowing you won’t stay in it for the entire duration of mortgage, but plan on selling it, you may wish to consider an adjustable rate mortgage, also known as an FHA ARM loan.

Borrowers who plan to sell early in the loan may (depending on circumstances) find the introductory or “teaser” rate for an FHA ARM loan to offer a financial advantage-a lower interest rate can lower the overall cost of the loan for as long as you choose to maintain the ARM loan (assuming that the introductory rate doesn’t expire too quickly). But if you do not plan to sell, an adjustable rate mortgage may not make as much sense (again, depending on your financial needs).

FHA refinance loans (fixed rate or ARM) also have some extra options to be aware of including an energy efficient add-on to your new mortgage loan for approved upgrades. Your lender will explain how the program works, but the upgrades must be lender-approved and meet FHA minimum standards.

FHA borrowers may also refinance a home using an FHA 203(k) rehab mortgage loan that allows you to renovate, improve, and upgrade a property with FHA loan funds.

FHA rehab loans come in “standard” and “limited” versions depending on the size and scale of your proposed repairs/rehab work. Limited 203(k) rehab loans have no minimum, but there are specific limitations to what you can do with limited 203(k) rehab funds. If you have a large or ambitious project, talk to a loan officer about which option may be best for you.
Non-FHA-to-FHA refinance loan options include cash-out and no cash-out versions; qualified borrowers are required to get a new appraisal on the property as well as submit to a new credit check as a condition of loan approval.

FHA Reverse Mortgage Options

For qualified borrowers aged 62 or older, FHA Reverse Mortgage loan (also known as an FHA Home Equity Conversion Mortgage or HECM) is an option to consider well. Qualified borrowers can apply for a loan that has no monthly mortgage payments and provides cash back to the borrower that varies in amount depending on the nature of the loan (including whether you apply for a fixed rate or adjustable rate HECM loan).

Who is considered a qualified HECM borrower? Applicants aged 62 or older (as mentioned above) who either own their property outright or have few mortgage payments remaining on the original note on a primary residence. FHA reverse mortgages cannot be used for vacation homes, or other non-primary owner-occupied homes.

Not all participating FHA lenders may offer reverse mortgages. Discuss your financial needs with an FHA loan officer to see what is possible at your financial institution, or consider shopping around for a new lender to service your FHA refi loan.

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