Is it time to refi your FHA mortgage?

With the appreciation homes are seeing in the greater Seattle – King County area, home owners who purchased their home a couple years ago using an FHA mortgage may now be able to refinance into a conventional mortgage. FHA mortgages are often used when a home buyer needs a lower down payment option or if credit scores are lower. FHA jumbo mortgages offer home buyers lower down payment with higher loan amounts than what conforming mortgages will permit. There are many reasons why someone might opt for an FHA mortgage when buying a home.

So why refinance out of an  FHA mortgage? A majority of FHA mortgages have monthly mortgage insurance premiums and in most cases, the mortgage insurance (especially if the loan closed within the last couple years) is expensive. FHA mortgage insurance is even more costly since it can no longer be claimed as a tax deduction.

Home owners can refinance now into a conventional mortgage and either eliminate or greatly reduce the monthly mortgage insurance premiums.  Even if current conventional rates are higher than your existing FHA mortgage rate, you will probably save with your monthly payment. And remember, mortgage insurance is no longer deductible – but mortgage interest still is.

What about higher loan amounts? For a couple years, FHA jumbos had a higher loan limit than conforming ($567,500 compared to $506,000 in King, Pierce and Snohomish Counties). This was again one reason why some borrowers would opt for FHA. Currently in the tri-county area, FHA and conforming high balance loan limit for a single family dwelling is $506,000.  Jumbo mortgages currently have rates that are right in line with conforming mortgages (sometimes they’re even lower). So if you’re home has appreciated, like many in the greater Seattle area, you may be able to refi that FHA jumbo into a conforming high balance or a jumbo mortgage with an attractive low rate.

Is refinancing right for you? Before you refinance, you need to consider how long you plan to keep your home. When you’re reviewing rate quotes, be sure to have the mortgage professional provide you with an amortization schedule so  you can see when you will be returning to current principal balance.

There are always cost associated with refinancing, even if the “cost” is paid for by increasing  your loan amount (this is why it’s important to review an amortization schedule) or increasing your rate using “rebate pricing” to create a credit to go towards closing cost. Be sure to consider the closing cost associated with the loan compared to your monthly savings. Be careful not to treat your reserve account (property taxes and home owners insurance) as a closing cost since this will be refunded to you from your current mortgage servicer a few weeks after closing.

When you refinance from an FHA mortgage to a conventional mortgage, an appraisal will be required. This is probably the biggest “wild card” with refinancing.  If you want to avoid an appraisal, an FHA streamlined refi may be a possible option.

It might seem strange to trade your lower FHA interest rate for a slightly higher conventional rate… keep in mind the monthly savings and potential tax savings with getting rid of the mortgage insurance.

A mortgage professional should provide you with a mortgage rate quote at no cost and without pulling your credit. The only information needed to get a rate quote is your estimated current mortgage balance, estimated value of your home, your current property taxes and home owners insurance payment as well as your approximate credit score (if you don’t know your exact score,  is your credit excellent, good, average, etc.).  It’s nice to have a break down of your existing mortgage payment – but it’s not mandatory.

Of course, if you’re considering buying or refinancing a home located anywhere in Washington state, I am happy to help you!  Click here for a no-hassle rate quote.