If you currently have an FHA loan, you may find that refinancing into a conventional mortgage may be a great choice to save money. Conventional loans can offer lower interest rates than comparable FHA loans. By refinancing into a conventional mortgage, you may be able to reduce both your monthly housing expenses and the total amount due on your mortgage. When you have 20 percent equity, conventional refinance rates are low with no upfront or monthly mortgage insurance fees.
What is a conventional loan?
A conventional mortgage is a loan that is not guaranteed or insured by any government agency. It is typically fixed in its terms and rate. Although conventional loans are not insured by the federal government, they must adhere to the mortgage guidelines set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Conventional loans carry no guarantees for the lender in the event the borrower defaults.
What types of loans can be refinanced with a conventional loan?
You can refinance any type of loan with a conventional loan. This includes FHA loans, USDA, Adjustable rate mortgages, Alt-A and Subprime loans.
How much equity do I need to refinance with a conventional loan?
You may qualify for a conventional refinance with as little as 5 percent equity in your home. Conventional loans with less than 20 percent equity require private mortgage insurance (PMI) which may, in some cases, cost half of FHA mortgage insurance. After you reach 20 percent equity, you can get rid of conventional PMI, while FHA mortgage insurance is required for the life of your loan. That’s a reason borrowers who purchased with an FHA loan are switching to conventional loans- they want to reduce mortgage costs.
Why can’t I just refinance with FHA?
FHA can be used to refinance but because of its flexibility, it is usually more expensive. Most borrowers who can qualify should lean toward a conventional refinance.
How do I apply for a conventional refinance?
Applying for a conventional refinance is just like applying for any other refinance. Rates are low and it’s a great time to apply for a conventional refinance. Give me a call or send me an email- I’d be happy to help you explore your refinancing options.
