Real: Government helps homeowners refinance

If you're looking for a way to refinance your mortgage, you might want to consider a loan that's backed by the Federal Housing Administration or, if you're a U.S. military veteran, the U.S. Department of Veterans Affairs.
Loans backed by these two federal government agencies are especially attractive today because the loan amount limits have been raised, and some loan programs are open to homeowners who have little to no equity or imperfect credit.
Given those benefits, it's no surprise that government-backed loans have accounted for a much larger share of total loan applications. In the second half of last year, government-backed loans accounted for as much as 30 percent of the total loan applications submitted to lenders, according to the Mortgage Bankers Association in Washington, D.C.
Yet not all lenders and mortgage brokers are able to offer Federal Housing Administration or Veterans Affairs loans, also known as FHA and VA loans, according to Greg Gwizdz, national sales manager at Wells Fargo Home Mortgage in Des Moines, Iowa.
"If the lender you choose doesn't offer FHA, you might not be getting the right loan," Gwizdz warns.
Homeowners have flocked to FHA-insured loans for a few reasons in particular:
-- Interest rates are competitive versus conventional loans.
-- Qualification guidelines are easier.
-- The credit standards may be more flexible.
-- Closing costs may be lower.
-- The loan-to-value ratio may be as high as 97 percent.
The catch is that all FHA-insured loans require mortgage insurance for at least five years. Mortgage insurance protects the lender if the borrower defaults on the loan. It is paid for by the homeowner in the form of an upfront fee and monthly premiums that are added to the mortgage payment. The FHA usually allows the upfront fee to be financed as part of the loan amount, but either way, mortgage insurance still adds to the cost of an FHA-insured loan.
Whether a borrower would be better off with an FHA-insured loan or a conventional mortgage depends in part on the loan-to-value ratio, or LTV ratio, according to Don Frommeyer, senior vice president at AmTrust Mortgage in Carmel, Ind.
You'll need to consult a loan officer or mortgage broker and do the math to figure out whether an FHA-insured loan or conventional loan would be a better fit for your situation. Compare the interest rate, terms and costs, and be aware that if you have a relatively lower credit score or want to take out cash, some lenders will tack on a "price adjustment" in the form of additional points.
Homeowners have two options to refinance into an FHA-insured loan:
Those who already have an FHA-insured mortgage can use a so-called "streamlined" process that requires neither a credit check nor an appraisal. These loans can be closed in a matter of days and the cost tends to be reduced in part because no appraisal is required.
Those who have a non-FHA-insured mortgage or want to consolidate debt or take out cash can still refinance into an FHA-insured loan, but a credit check and appraisal will be required. Loan approval will be based on your income, other debts and credit history.
Military veterans who want to refinance can take advantage of recent changes that make the VA's loan guarantee program more flexible for borrowers. The program now allows an LTV ratio of up to 100 percent, rather than the previous limit of 90 percent. Maximum loan amounts have been increased from just $144,000 to significantly higher limits depending on the county where the property is located.
"These changes will allow (the) VA to assist a substantial number of veterans with subprime mortgages to refinance into a safer, more affordable VA-guaranteed loan," VA Secretary James B. Peake said in an October 2008 statement.
During wartime, an active-duty member of the U.S. military needs only 90 days of service to qualify for the VA loan program. The requirement for a reservist or National Guard member is six years, unless the member is called up to active duty, in which case the 90-day requirement applies, according to Jim Brown, CEO of Veteran Mortgage in Everett, Wash.
"A lot of reservists don't know that they qualify," Brown said.
The VA charges an upfront funding fee, but the fee is waived for veterans who have a 10 percent or more disability and there is no mortgage insurance on these loans. Borrowers must have a stable income and reasonable good credit history, though the guidelines are generous and flexible, Brown explains.
One other federal government agency -- the U.S. Department of Agriculture's Rural Development Department -- also guarantees home mortgages. But while the department's program may be ideal for moderate-income homebuyers in small towns, its applicability to those who want to refinance is limited because the agency will only refinance or modify existing Rural Development loans, according to Jay Fletcher, a spokesman for the USDA department.

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Mortgage rates were unchanged this week.
The average 30-year, fixed-rate remained unchanged at 5.41 percent.
This week's average 15-year fixed -- a popular option for refinancing -- edged up 1 basis point, to 4.94 percent. A basis point is one-hundredth of a percentage point.
The average jumbo 30-year fixed dropped 10 basis points, to 6.77 percent.
Adjustable-rate mortgages were down this week. The one-year, adjustable-rate mortgage fell 15 basis points, to 5.43 percent. The popular 5/1 ARM slipped 1 basis point, to 5.39 percent.

(Distributed by Scripps Howard News Service. Reach xxxx at editors(at)bankrate.com)
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