Compare Rates on an FHA Refinance
Refinancing into a loan insured by the Federal Housing Administration (FHA) can give you a way to tap into your equity, improve your interest rate, and more. Plus, some types of FHA refinances are available even if you’re working with a conventional mortgage (read: not an FHA loan) right now.
The FHA backing lowers risk for the lender, so this kind of refinance can help you qualify even if your credit score isn’t ideal or you don’t have very much equity. That said, it comes with mortgage insurance premiums (MIPs), so it’s not always the most cost-effective route.
To help you decide if it’s right for you, it helps to compare overall costs and rates on an FHA refinance against your other options.
Type of FHA refinances
The Federal Housing Administration insures four different kinds of refinances:
FHA simple refinance
This kind of refi is intended for homeowners who currently have an FHA loan but want to change something about how it functions. This kind of refinance can be used to change from an FHA loan with an adjustable interest rate (i.e., an ARM) to a fixed-rate mortgage, for example. You might also choose this option if you want to remove a co-borrower or you now qualify for a better interest rate.
FHA streamline refinance
As its name suggests, the streamline refinance option from the FHA simplifies the process to get approved for your refi. You’ll need to provide less documentation and the underwriting process is quicker and easier. You won’t need to get your house appraised or verify your income, for example.
Streamline refinances are only available if you already have an FHA loan. You also need to be able to prove a net tangible benefit, like a reduction in your interest rate or monthly payment.
FHA cash-out refinance
This option is available whether you have an FHA or conventional loan right now (in other words, anyone can use it). Getting this kind of FHA-backed loan lets you borrow up to 80% of your home’s current appraised value.
With a cash-out refi, you get to pocket the difference between the new amount you borrow and the balance on your current mortgage.
FHA 203(k) refinance
203(k) loans allow you to buy a house and finance the cost of fixing it up with a single loan, and one that has government backing. If your home needs repairs or you want a way to pay for a renovation, this option could be right for you. It’s available even if you don’t currently have an FHA loan.
The pros and cons of an FHA refinance
Before you decide to get a refinanced loan complete with FHA insurance, weigh it out.
Pros of an FHA refinance
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The FHA insurance makes it easier to qualify even if you have a credit score that isn’t great or a higher debt-to-income (DTI) ratio.
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The looser underwriting requirements might help you qualify for a better interest rate.
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Streamlined refinances make the process faster and easier for homeowners who currently have FHA loans.
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Some FHA refinances don’t require much equity. In fact, the streamline refinance doesn’t have an equity requirement at all.
Cons of an FHA refinance
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All FHA loans, including refinances, come with mortgage insurance premiums (MIPs). You need to pay some of these premiums upfront and you’ll have an added monthly cost from them for at least 11 years.
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Those MIPs might make the refi more expensive over time, even if you’re getting a better rate with the FHA-backed loan than a conventional one. (Conventional loans let you remove mortgage insurance after you get enough equity).
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The FHA limits how much you can borrow based on your region.
How to compare FHA Refinance Rates mortgage rates
If you only take one piece of advice when you’re getting a mortgage, let it be this: compare rates from at least three different lenders. Doing so can save you thousands of dollars over the life of your loan.
To make it easier for you to put the work in here, follow these steps:
Step 1: Understand your borrower profile
First, you want to get a handle on how mortgage lenders are going to see you. If you look like you’re going to be able to repay your home loan fairly easily, they’ll offer you more favorable conditions. If you look high-risk, you’re going to pay more for your mortgage. Specifically, you’ll be charged a higher interest rate.
So, what makes a borrower low- or high-risk? To decide what kind of loan to offer to you (if any), lenders look at a lot of factors. The biggest ones here include:
- Your monthly income — you don’t want an overly large chunk to have to go toward paying your monthly mortgage bill, which lenders measure with your debt-to-income (DTI) ratio
- Your credit score, which essentially tells them how good you’ve been with managing money in the past
- Your loan-to-value (LTV) ratio (higher is riskier) — the price of the house and your down payment size both come into play here
If you’re not in good shape in any of these areas, putting in some work before you buy (e.g., working on your credit score, lowering your DTI ratio) can help you get a lower interest rate.
Step 2: Use rate tables to see what’s on offer today
There are lots of resources online that show you rate offers from leading lenders. Use a mortgage rate table to get a feel for what kind of interest rates are available from financial institutions that provide home loans in your area.
Ideally, that rate table lets you input personal information, like your credit score and the price of the house you want to buy. This way, the rates you get shown should align with what you’re actually eligible to get. A lot of lenders advertise low starting rates, but only the “best” borrowers will be approved for them once they apply.
Step 3: Get preapproved with three lenders
Once you’ve picked out a few lenders that look good to you, go through their preapproval process. That will mean filling out some paperwork, but it’s the best way to figure out what you can really qualify for in terms of loan size and interest rate.
Have financial documents — like your bank statement and pay stubs — handy to make it easier to complete your preapproval applications.
Step 4: Compare preapprovals
When you get preapproved, the lender should give you documentation about your potential mortgage. Ideally, this gives you a feel for the total amount you’re borrowing, the repayment term, the interest rate, fees, and closing costs.
Line up your quotes from each lender and go through them, paying special attention to the annual percentage rate (APR). This tells you how much you’ll pay each year for the loan including not just interest, but also fees. By looking at APRs, you get a clear idea of what you’ll truly pay if you choose that specific mortgage. This helps you identify the best option for yourself and your financial goals.
If you’re ready to start comparing FHA Refinance Rates rates, use our rate table to get started. We have fields up top where you can input key details like your credit score range and zip code so we can best tailor the mortgage rate offers to you.