FHA Mortgage Refinance for Lower Interest Rates

Are you in the market for home refinancing? If so, you’ve probably heard a lot about FHA mortgage refinance in the course of your research. In this article, I’ll talk about your FHA refinancing options and how they can be used to get a lower interest rate on a mortgage loan.

First of all, you need to bear in mind that everything I’m about to say is generalized. Some people simply don’t qualify for FHA refinance programs, and for a variety of reasons. Additionally, each mortgage lender has its own way of reviewing loan applications, assigning interest rates, etc. So nothing with regard to FHA mortgage refinance is set in stone. With that disclaimer out of the way, let’s talk about how you might lower your interest rate with an FHA home loan.

FHA Mortgage Refinance Defined

Let’s start with a definition of this particular refinancing program and how it works. Through this process, you are basically replacing your current home loan with a new one. You finance the home when you first buy it, and you refinance it the second time around. When you do this using an FHA mortgage loan, there are certain aspects that make the process unique.

The Federal Housing Administration (FHA) does not actually extend loans to consumers. Instead, this government agency insures the loans made by primary mortgage lenders. Because of this government backing, lenders are willing to be more flexible with their qualification criteria. You can get approved for an FHA mortgage refinance loan easier than a non-FHA loan, and you can often qualify for a lower interest rate as well.

Notice how I used the word “often” in that last sentence. Remember, none of this is written in stone. Some people are better qualified for refinancing under this program, and each lender has its own standards. With that said, the best way to find out if you qualify is to apply. You can use the link at the top of this blog to do that.

Getting a Lower Interest Rate

There are two primary reasons why people choose FHA home loans. One has to do with initial home purchases, and the other reason has to do with homeowners who refinance. First-time home buyers often apply for FHA mortgages because they are easier to qualify for, and you don’t have to put as much money down in advance. Homeowners use FHA mortgage refinance to lower their interest rates, thus saving money over the life of the new loan.

Of course, in order to make this worthwhile, you have to lower your interest rate by a certain amount. The money you save over your future mortgage payments must exceed the amount you pay in closing costs. This is often referred to as the “break-even” point, beyond which it makes sense to refinance the loan.

At the time of this blog post, interest rates are still pretty low (about 5.42% on a 30-year fixed mortgage). So a homeowner with positive equity has a good chance of getting a lower interest rate through the FHA mortgage refinance program. Equity is the primary obstacle for a lot of homeowners right now, resulting from the housing market collapse of 2008. You’ll probably need at least 10% equity to qualify for an FHA refinance loan, and maybe even more (depending on the lender). To get the lowest rate the lender has to offer, you’ll probably need a credit score of 760 or above.

I’ve said it before, but it bears repeating. None of this is set in stone. The credit score and equity numbers I’ve just given you are merely averages, based on what I’ve read and the conversations I’ve had with lenders. You could, for example, qualify for an FHA mortgage refinance with a lower interest rate, even if your credit score is below the range mentioned above.

There’s only one way to find out — you have to apply for refinancing. You can do so by using the FHA link provided at the top of this website.