Homeowners in Arizona with FHA loans should all take a good look at their home's current value to see if refinancing into a conventional home loan is an option.
It's no secret that home values have risen significantly over the past year or two here in Arizona. AZCentral estimates between 15-45% in the greater Phoenix area (info here). Many homeowners who purchased in the last few years chose an FHA loan because of the low down payment options. What those homeowners don't realize is that they may be able to refinance out of their FHA loan and into a conventional loan with lower monthly mortgage insurance or possibly no mortgage insurance at all!
Not everyone's home has risen enough to take advantage of this possibility, but there are many people out there who would greatly benefit from it that haven't even considered it an option.
What are the advantages and disadvantages of refinancing from an FHA to a conventional loan?
Advantages of moving from an FHA loan to a conventional loan:
- Conventional loans have much lower monthly mortgage insurance premiums than FHA.
- Conventional loans do not require upfront mortgage insurance premiums - FHA loans currently require 1.75% of the loan amount to be paid at the time of the loan.
- Monthly mortgage insurance lasts for the life with FHA loans taken out after June 3, 2013.
- Conventional loans remove monthly mortgage insurance once a homeowner reaches 22% equity.
- Conventional loans do not require monthly mortgage insurance if a home has 20% or more equity when the loan is taken out.
- If your FHA loan is less than 36 months old, you may be entitled to a refund for a portion of your upfront mortgage insurance.
Disadvantages of moving from an FHA loan to a conventional loan:
- Rates are likely to be higher (this is typically more than offset by the monthly mortgage insurance savings).
- Costs of refinancing (this may be limited depending on the rate and program chosen by the borrower)
Here's a recent refinance example to give you a real world perspective on how much could be saved:
Todd & Sandy S. have a beautiful home in Gilbert, AZ that they purchased in 2011 with an FHA loan. They originally put 3.5% down on the home and purchased it for $183,950 with a 30 year fixed FHA loan for . The interest rate was 4.5%. This was the best option for their situation in 2011. The total monthly payment was $1,229.54 including principal, interest, mortgage insurance, taxes and insurance.
Fast forward to 2014, Todd and Sandy's home increased dramatically in value to $282,000 (the appraisal confirmed this amount). Todd and Sandy were able to refinance into a conventional loan with limited closing costs (less than $1,000) and completely get rid of the mortgage insurance altogether. Their new interest rate? 4.50%. However, because they were able to leave the FHA program and go conventional with at least 20% equity, their new total monthly payment is $1062.30. Their new monthly payment is $167 less and they didn't even lower their rate!
They also had the option to take equity out of their house to consolidate debt or do home improvement projects, but for Todd and Sandy, lowering their monthly payment was their most important goal.
If you are currently in an FHA loan here in the greater Phoenix area, why not give me a call and discuss the possibility of lowering your payment by taking advantage of rising home values?
Thanks for reading my blog!
John Moran | Loan Officer
W. J. Bradley Mortgage Capital, LLC
9237 E Via De Ventura Suite 100 Scottsdale, AZ 85258
Website: Mortgage Refinance in Arizona