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Comparing Conforming and FHA Refinancing Loans

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Lately we have received a lot of people are asking for advice about whether they should get a conforming refinance or a FHA refinance.  With home loan rates on the rise many homeowners want to make sure that they choose the right refinance loan.  Both the conforming and FHA refinance are good choices but you must first see which programs you are approved for because you only want to compare home refinancing options that you are actually eligible for.

For example, with “FHA refinancing” you only need 3.5% worth of home equity to qualify, whereas with conforming refinancing you need 10 to 20% equity depending on your credit score.  If you want cash out you will need 15% equity in your home with a FHA loan, whereas with the conforming options you would need 20-25% depending on the size of the loan amount.  The major advantages of FHA refinancing is that they require less equity and typically the underwriters are more forgiving when it comes to credit.

If you qualify for both refinance options, then conforming is the best option because there is no mortgage insurance to pay monthly. With FHA mortgages there is a charge for mortgage insurance monthly.  Nobody likes paying mortgage insurance if they do not have to, but if you do not have enough equity, then FHA refinancing may be the best solution for you.

You also want to make sure that there is no pre-payment penalty, because you never know if you will need to move or even refinance again in the future.  Most qualified lenders will not have a pre-payment penalty attached to conforming or FHA loans, but you never know so verify that with your loan officer. As far as closing costs go, both refinance options should have $2,000 to $3,000 in closing costs, but some lenders like Nationwide have the ability to offer a no cost refinance loan.  We recommend the no cost refinance, if you meet the qualifications and it doesn’t increase your interest rate more than 0.125%.  Both conforming and FHA interest rates remain nearly at record lows and usually the rates are the same.

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