About half of the mortgages I will close in December are for people who have an existing FHA mortgage and thought they could not refinance because of all the misinformation floating around about the current mortgage environment. The borrowers will be getting a nice Christmas present in terms of monthly savings for years to come. The most common misbelieves I encounter is that people with a FHA mortgage could not refinance because:
1. I owe more than my home is worth.
2. I do not have perfect credit.
3. I do not have an FHA mortgage.
4. I have an FHA mortgage, but the property is now a rental.
The FHA streamline refinance program is a thing of beauty that allows borrowers who currently have an FHA mortgage to refinance with a minimum of hassle. An appraisal is usually not required unless the borrower is rolling in a lot of costs, which is a bad idea anyway. A credit score of 640, which is far from perfect credit, is usually acceptable. Check your monthly mortgage statement to see if it specifies what type of mortgage you have. Unless your statement clearly states that you have a conventional or VA loan, have it reviewed by a mortgage professional. Their should not be any fees to review your current mortgage OR to apply for a mortgage. An application fee is a warning sign to prospective borrowers that they will be on a runaway stagecoach with high rates and fees, bad service, as fellow passengers.
The misconception that you may not refinance an FHA mortgage when the property is now a rental comes up often. While FHA does not permit you to originate an FHA mortgage for purchase, you may refinance an FHA mortgage for a property that is now a rental. A word to the wise: do not even think about claiming your investment property is a primary residence. While various real estate “gurus” advocate this, it is very bad advice because they are encouraging you to commit mortgage fraud. Whenever I hear the phrase “real estate guru”, I wonder if the speaker is trying to sell you something expensive and worthless, such as training to show you the “hidden tricks that will make you rich overnight”.
What you should do with the monthly savings depends on your unique situation. I have one astute client who took the money from her escrow refund, the monthly payment that she skipped, and applied this to principal reduction on the first payment of her refinance. A perfect example of long term planning and financial discipline.
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