Refinance Your High Rate Subprime Loan To FHA

By: Bill Wehr

There are a number of homeowners who currently have a high interest rate subprime mortgage loan. Now may be the time to refinance into a lower rate FHA mortgage loan.Initially a person buying a home may not have been able to qualify for an FHA loan, but now that person may very well be in a position to save some real money.

Itís worth the time to just take a brief overview of these two programs. There was a reason that a homebuyer chose a subprime loan over an FHA at the time the home was acquired. By generally comparing the two loans we can see how they differ. The FHA loan might now offer a more preferable rate and more stable payback term than the subprime loan current schedule of payments.

FHA is a government home loan program that is generally thought of as being primarily for first time homebuyers. It is indeed a great program that gives homeownership for first time buyers. It is more flexible in certain areas than a standard conventional mortgage program. It allows for higher income to debt ratios, lower down payment or no down payment and expanded credit qualifying.

Subprime lending has filled a gap for buyers that cannot for some reason qualify for conventional or FHA. At the time the home was purchased the buyer perhaps could not document income, had credit issues or the ability to show a source of funds to satisfy the underwriting requirements for the loan program. Subprime lending gave that buyer the keys to the home. This gave the entry to homeownership and the American Dream. The program itself at the time was probably not as attractive as an FHA. The rate was higher, the closing costs higher and the program most likely had a designated prepayment penalty that ran from one to five years. Mostly of concern was that the program had a fixed rate for only a short period of time then would go to an adjustable rate payment. The fixed payment period of the loan was anywhere from as little as six months to five years before the change in payment would start. This could result in higher payments on top of more than likely higher property taxes and homeowner insurance costs.

Today the homeowner with a subprime mortgage could be looking to improve their monthly cash flow by having lower monthly house payments. With the pressures of an unknown future the option of having a stable fixed rate mortgage becomes more attractive. At the same time their individual financial circumstances have improved to the point of where a lower rate FHA loan is a possibility.

What you didnít have going into the original loan more than likely was a track record of making mortgage payments. Having a record of paying a lender on time speaks loudly and clearly to how you are able to handle that responsibility. This, coupled with making payments on time to other creditors such as credit unions and various charge card companies, generally improves credit scores.

At the time of the original loan you may have been new on the job or new in your profession. Since that time you have gained time on the job or moved up in the same line of work. All this has improved you chance to qualify for a lower rate mortgage.

Also, at the time of the original loan you may have gotten into the house with no down payment or very little. In other words, you had no equity to start. Now, as time passed, in many sections of the country there has been real tangible increase in home values. FHA will allow up to 95% of appraised value of your home even allowing cash back. The money you still havenít been able to save is not a problem. The costs of an FHA refinance can be rolled into the new loan. There could be enough equity to allow you to pay off high interest charge cards in addition to paying off a high rate mortgage loan.

FHA has loan lending limits for various areas of the country. Low cost areas are around $200,160 up to $362,790 for the high-end markets. Now may be the time to look into refinancing your home with FHA. You may be more qualified than you think.

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Bill Wehr publishes mortgage articles at Bill has an MBA and is the owner of Great Pacific Northwest Mortgage serving Oregon and Washington. For loans please complete a secure on-line application at

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