Popular Refinance Programs for Owners With Equity

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Interest rates have been hovering near all-time lows for weeks now, and many people are watching reports on both how low rates are as well as “new” refinancing programs such as the HARP refinance for underwater borrowers.

But what if you don’t currently owe more on your mortgage than your house is worth? Can you still refinance?

Of course.

In fact, in many circumstances it will actually be easier to refinance if you have equity in your home.

When considering refinancing, the first step is to identify your goal. Do you just want a lower monthly payment? Do you want to get cash in exchange for some of the equity you have built up in your home?

Once you have identified your goal, the second step is to learn more about the refinance program that will best match your needs.

Conventional refinance

If your loan is backed by Fannie Mae or Freddie Mac, it is considered a “conventional” loan. Refinancing a conventional loan is the most common refinance option. Highlights of conventional refinance programs include:

  • Appraisal required
  • Full employment and income verification
  • Employment history of two years
  • 620 credit score
  • Popular to go from 30-year term to 15-year term
  • 95 percent loan-to-value with mortgage insurance, 80 percent without
  • Lender credit allowed to cover closing costs

FHA streamline refinance

The FHA streamline refinance program is designed for people who currently have a Federal Housing Administration (FHA) loan and just want to lower their monthly payments. If you have done an FHA streamline refinance in the past, you may still be eligible to do another FHA streamline as long as it benefits you financially. Highlights of the FHA streamline program include:

  • No appraisal required
  • No income verification
  • No credit score verification required by HUD, but payment history will be considered
  • Low fixed rates
  • Lender credit allowed to cover closing costs

VA streamline refinance

The VA streamline refinance is a popular program for veterans or active-duty military personnel who have a Veterans Affairs loan. Similar to the FHA streamline, the VA streamline is designed for people who want to lower their monthly mortgage payment without getting cash out. Highlights of the VA streamline program include:

  • No appraisal required
  • No income verification
  • No credit score verification required by HUD, but some lenders may set minimum score requirements
  • Low fixed rates
  • Reduced funding fee requirement (0.5 percent)
  • Lender credit allowed to cover closing costs

Cash-out refinance

In the event that you want to convert part of your home’s equity to cash, there are programs called “cash-out” refinance programs. FHA, VA and conventional loans all have different cash-out refinance requirements, but generally speaking, here are some highlights of what to expect:

  • Appraisal required
  • Full income and employment verification
  • 620 credit score
  • 85 percent loan-to-value for FHA; 80 percent for conventional; 100 percent for VA
  • Lender credit allowed to cover closing costs

While rates are low, it will often make sense to refinance — whether you want to get cash out of the equity of your home or just lower your monthly mortgage payment.  In each of the above scenarios, one thing sticks out regardless of which program you’re interested in …

Lender credit allowed to cover closing costs”

Let your lender pick up the tab for you!

Related:

Justin McHood is America’s Mortgage Commentator and lives in the Phoenix, Arizona area. You can find Justin on Facebook, Twitter, and LinkedIn. He is happy to answer any mortgage-related questions that you may have.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

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