What is a Refinancing Loan From the Federal Housing Administration Used For?

Answer 1

For first time home buyers, the Federal Housing Administration offers mortgage insurance, which makes it much easier to get approved by qualifying lenders. What about families who have owned their homes for a few years and have some equity built up? The FHA offers an option here, too: a loan that allows homeowners to refinance their current loan while taking advantage of the available equity. The equity can be used for college expenses, vacations, consolidating debts and paying some outstanding bills. There is one condition that has to be met for borrowers to qualify for an FHA refinancing loan: the home they own must be their principle residence.

There are two types of refinancing available: cash-out refinancing and streamlined refinancing. Cash-out is beneficial to homeowners whose homes have increased in market value, and therefore in equity, since the home was purchased. A cash-out loan lets homeowners refinance their current home loan by taking out a second loan. Here’s the trick: the second loan is worth more than the first one. This pays their first mortgage and uses the built-up equity to take out another mortgage larger than the first. That equity can then be used by the homeowners however they wish.

Sometimes homeowners are in a bind: their homes have not increased in value, they are paying high interest rates and they are starting to feel the pinch. Streamlined refinancing from the FHA solves this dilemma because it lowers their interest rates, often without having to get an appraisal. This option also cuts down on the paperwork for your lender, saving you an enormous amount of time. There are two qualifications that borrowers have to meet: their existing loan must be from the FHA and it must be in good standing, and the borrower needs to demonstrate that the refinance will lower their interest rates.

Streamlined refinancing lowers the borrower’s monthly interest payments but does not allow them to take advantage of any equity. There is still a benefit, however; the homeowner can use the extra money that would have been used to pay the interest rates for whatever they wish. These two options afford extra financial room to borrowers while providing them with a little extra liquidity.