Like thousands of Americans, your first mortgage loan may have been a Federal Housing Administration (FHA) loan with minimal down payment and credit score requirements. These loans are terrific for enabling first-time buyers in particular to obtain financing. When you want to refinance, however, another FHA loan may not always be in your best interest. FHA loans have various requirements that can be confusing for even the most financially savvy. Worse yet, these additional requirements are evolving.
Did you know since June 3, 2013, new FHA loans require borrowers to pay two kinds of mortgage insurance: A one-time, up front mortgage insurance premium (UFMIP) and a monthly mortgage insurance payment (MI). The UFMIP today costs 1.75 percent of a loan's principal balance and is paid at closing. The MI costs from 0.45% to 1.55% of the loan balance for as long as you hold your FHA loan.
For example, borrowers applying for a $200,000 30-year fixed FHA loan today will have to pay a $3,500 upfront mortgage insurance premium. Additionally, these borrowers must also pay an annual premium of $900 to$3100 for the life of the loan. FHA rates may be low, but the added costs of mortgage insurance could make refinancing into even a slightly higher interest rate result in lower monthly payments for the borrower.
Fortunately, homeowners have the option of refinancing out of an FHA loan to a conventional mortgage. If you are looking to get rid of your mortgage insurance, refinancing from an FHA to a conventional loan might be the right choice for you.
Even if an FHA rates are lower than conventional rates, it may not always be in your best interest to refinance into another FHA loan. A licensed loan officer can help you evaluate the convoluted nuances of FHA refinances and help you identify your best financial solution.
To see if a conventional loan refinance makes sense for you, speak with a PennyMac loan officer today by calling (888) 457-0047 and learn how you can lower your monthly mortgage payment!