Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans are popular homebuyer choices, but are also available if you’re refinancing your mortgage.1 These loans must meet certain requirements.
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FHA Mortgage Insurance
The Federal Housing Administration (FHA) provides mortgage insurance on loans made by approved lenders. FHA mortgage insurance provides lenders with protection against losses against mortgage payment default. The cost of the mortgage insurance is paid by the homeowner as an upfront amount which is usually financed into the loan amount, as well as an amount that is included in the monthly mortgage payment. The amount of mortgage insurance paid on an FHA loan is dependent on the base loan amount, loan term and loan-to-value (LTV) ratio.
You are typically required to pay a one-time funding fee on VA loans. This fee ranges from 0.5 to 3.30 percent, depending on your service type, prior use of VA eligibility, and type of loan transaction.
Interest Rate Reduction Refinance Loan (IRRRL)
An Interest Rate Reduction Refinancing Loan (IRRRL) can be done only when the veteran already has his or her entitlement used for a VA loan on the property to be refinanced. In other words, it must be a VA to VA refinance reusing the veteran-applicant's entitlement.
Private Mortgage Insurance
Insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default.
Mortgage insurance (MI)
Mortgage insurance protects the lender against a loss if a borrower defaults on the loan. On conventional (non-government) loans, private mortgage insurance (PMI) is usually required if your loan amount is greater than 80% of the home’s value. On government-backed FHA loans, mortgage insurance is usually required in the form of both an upfront premium, as well as a monthly premium. The amount of mortgage insurance paid on an FHA loan is dependent on the base loan amount, loan term and loan-to-value (LTV) ratio.
If you are a servicemember on active duty, prior to seeking a refinance of your existing mortgage loan, please consult with your legal advisor regarding the loss of any benefits you are entitled to under the Servicemembers Civil Relief Act or applicable state law.