Recently I had client call me wanting to look into refinancing, but had some questions. Like most of us hearing that rates are low, she wanted to see if refinancing would be a good option right now, to either lower her rate and payment OR if there was a loan option out there regarding the possibility of doing a rehab/renovation loan (which yes, that would be the FHA 203k).
She purchased her property just over three years ago and had FHA financing. Which at that time her condo/building was FHA/VA approved (obviously). But now as we were looking into refinancing for a 203k, we found out that her buildings FHA/VA approval had expired.
What does this mean?
This means that her loan options are now limited. She can no longer do a 203k refinance, but she can do a Streamline refinance OR refinance into a Conventional loan. For a streamline refinance, yes she may be able to lower her rate BUT because FHA upfront mortgage insurance (UFMIP) has recently increased as well as the monthly Mortgage Insurance (MI), her rate would be ower but compared to her existing monthly MI, refinancing would not lower her payment which would make it unbeneficial to do a streamline refi. Now to refinance into a Conventional loan there will need to be 5-20% equity into the property, preferably 20% because then there would be no need for MI. The only way to determine the value is to have an appraisal, which is an upfront cost (approx. $400-500).
How can this situation be avoided?
- You would need to check with your HOA contact to make sure they have kept up on the FHA/VA renewals for your building.
- If they have not, you would need to pressure them to get completed, even go as far as getting other homeowners included on the importance.
How is this important if you are NOT wanting to refinance?
This is important whether you are purchasing or refinancing a condo because when you are wanting to purchase, if the property is not FHA/VA approved then your only choice for financing is Conventional or Cash.
Now if you are not looking to purchase OR refinancing but are wanting to sell your condo, then this is also important for you. Why? Because if the building is not FHA/VA approved then any buyers interested in your condo will need to purchase with a Conventional loan OR Cash! This will limit your pool of potential buyers. In this market FHA is growing more popular and on average about 45% of loans today are FHA. *Please note that conventional loans have additional restrictions and/or requirements, so make sure to discuss with your lender.
So my suggestion is that whether you are purchasing or refinancing ALWAYS check to see if the property is FHA/VA approved. If you are unsure how to find out please check with your Realtor AND Lender.
If you have any questions please don’t hesitate to contact us.