Looking back to when you first bought your home, you probably were pretty happy that you even got that house you had your eye on.
And if you are like many Americans, you were able to buy that house thanks in part to the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA). These federal government agencies sponsor mortgage loan programs which have given the word hope a whole new meaning.
By easing up on the restrictions and financial outlays typically associated with buying a home, they have made ownership a reality for many low- to moderate-income individuals.
But what if mortgage rates were higher when you obtained your loan through the help of these agencies? Can you refinance into a new loan and still maintain the benefits that these programs can offer? The answer is yes.
More and more people are finding it difficult to make their mortgage payments, and some of this financial burden can be directly related to the fact that these consumers have their mortgages locked in at high interest rates.
Or maybe when these buyers first purchased the home, they used an adjustable rate mortgage to take advantage of initial low rates, but are now having to tighten their purse strings as interest rates rise.
Maybe an individual’s financial picture has changed as well. This change may mean that the person can now afford to pay more towards the mortgage each month, or possibly less, depending on his/her situation.
The FHA and VA realize that changes can and do happen, and allow homeowners using their sponsored loans to refinance into a lower rate or a shorter term. The programs that they have developed include ways for home owners to refinance their current mortgages efficiently, often at a cost less than through a conventional refinancing package.
FHA has come up with two programs which offer solutions to the refinancing dilemma many people are facing with the current interest rate situation. The two programs being offered are:
– Streamline Refinancing.
The borrower with an FHA-insured loan can refinance into another such loan, but with a lower interest rate (in most cases) or a shorter term (to accelerate equity build-up). Depending on the lender, this can be done with no new property appraisal, limited borrower verification and minimal refinancing costs. Lenders also can arrange the new loan so that there is no out-of-pocket cash expense for the borrower at closing.
– Refinancing for Delinquent Mortgages.
This option is for those who have gotten themselves behind in their mortgage payments. The lender would be able to refinance three or more of the missed mortgage payments. This option offers a quick fix, but no real long-term benefits, unless the refinancing is incorporated into a new mortgage at a lower rate.
The VA, another major player in the government’s programs of help for home ownership, also helps consumers who wish to refinance.
The agency has a program called the IRRRL (Interest Rate Reduction Refinancing Loan). This program is also referred to as a “Streamline” or “VA to VA” loan.
That means that the borrower will, as in the FHA examples, still be involved in a government program, but can benefit from a lower fixed interest rate or a shorter-term loan.
With IRRRL, borrower verifications are minimized and closing costs can be financed into the new loan or absorbed by the lender (in exchange for a slightly higher interest rate on the new loan).
What about refinancing out of a government backed loan program altogether? Conventional loans usually charge interest rates slightly below FHA and VA loans, but full property and borrower evaluations are likely to be required.
The choice as to whether or not to stay in a government program depends entirely on your personal financial situation.
Sometimes one of the deciding factors is that mortgage insurance is required for FHA-insured loan programs (or a funding fee with VA-guaranteed loans).
Depending on how much equity is built up in the home, a borrower may save upwards of $50 a month in Mortgage Insurance Premiums (or lower up front closing costs like up front mortgage insurance or the VA funding fee), by refinancing into a conventional type loan.
Don’t forget the possibility of refinancing to consolidate loans or obtain extra cash. The FHA and VA refinancing programs do not allow debt consolidation or provide borrowers with ready cash.
The decision to refinance is one which should be based on whether or not the costs associated with doing so will be outweighed by the continual savings of a lower interest rate.
If you are in doubt as to whether or not to stay in one of the government’s programs, you need to check around and compare interest rates and associated fees.
Consumers wishing to learn more about refinancing their FHA-insured or VA-guaranteed loan are encouraged to contact their mortgage lender or call their local HUD office or the VA at 1-800-827-1000.
The agencies also can be accessed on the internet at http://www.hud.gov and http://www.va.gov.
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Jim DeBoth is president of Mortgage Market Information Services. Address your questions to Mortgages, c/o the Chicago Tribune, Real Estate Section, 435 N. Michigan Ave., Chicago, Ill., 60611. Sorry, we cannot accept questions over the phone and will not give personal replies.
