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Refinancing Your Government-Backed Mortgage with O1ne Mortgage

If you previously took out a government-backed loan and are looking to lower your monthly payments or eliminate mortgage insurance, refinancing might be the solution for you. At O1ne Mortgage, we offer two main refinancing options: converting your mortgage into a conventional loan or refinancing into a new government-backed loan. Here’s a comprehensive guide to help you understand your options and the refinancing process.

What Are Government Refinance Programs?

Government refinance programs allow you to refinance government-backed mortgages, including FHA, USDA, and VA loans. These programs often come with borrower-friendly features such as streamlined underwriting. Your options will depend on your current mortgage and your refinancing goals.

VA Loans

VA loans, guaranteed by the U.S. Department of Veterans Affairs, are available to military service members, veterans, and eligible surviving spouses. These loans do not require a down payment or mortgage insurance, but a funding fee is required at closing. Here are your refinancing options:

• VA Interest Rate Reduction Refinance Loans (IRRRLs): Simplified underwriting with no home appraisal, income paperwork, or credit review required. Your new interest rate must be lower unless you have an adjustable-rate mortgage (ARM).
• VA Cash-Out Refinances: Borrow more than you owe and pocket the difference as cash. You can borrow up to 100% of your home’s appraised value, though lenders may set different limits. An appraisal and credit check are required.

USDA Loans

USDA loans, guaranteed by the U.S. Department of Agriculture, are available to low-income borrowers in designated rural areas. While USDA does not offer a cash-out refinance, you have three other options:

• USDA Streamline Assist Refinance Loans: Simplified underwriting with no home appraisal or credit review, provided you are current on your mortgage payments. The refinance must save you at least $50 a month.
• USDA Streamline Refinance Loans: Requires a credit and debt-to-income ratio review but no home appraisal in most cases.
• USDA Rate-and-Term Refinances: Take out a new USDA mortgage with a new term, interest rate, or both. Requires a credit check and home appraisal.

FHA Loans

FHA loans, backed by the Federal Housing Administration, offer flexible lending criteria. Here are your refinancing options:

• FHA Streamline Refinances: Quickly refinance your existing FHA loan with no income verification, credit review, or home appraisal required.
• FHA Rate-and-Term Refinances: Take out a new FHA loan up to 97.75% of your home’s value with a new interest rate and term. Requires income verification, credit check, and home appraisal.
• FHA Cash-Out Refinances: Borrow up to 80% of your home’s value and keep the difference in cash.

Seasoning a Government-Backed Home Loan

Before refinancing, you may need to wait a certain period, known as the seasoning period. The length varies by loan type:

• VA Loans: Wait at least 210 days from the first payment or closing date before applying for an IRRRL or cash-out refinance.
• FHA Loans: Make at least six payments and wait 210 days from the closing date before applying for a streamline or cash-out refinance.
• USDA Loans: Wait at least 12 months before refinancing into a new USDA loan.

Refinancing a Government-Backed Mortgage with a Conventional Loan

If you have a government-backed loan, you can refinance it into a conventional mortgage. There is no defined seasoning period, but you must meet lending standards, including:

• A minimum credit score of 620
• At least 3% equity in your property
• A debt-to-income ratio of 45% or less
• Proof of income and employment

Refinancing into a conventional loan can help you eliminate mortgage insurance once you reach more than 20% equity in your home. The process involves a full underwriting review, including a credit check, home appraisal, and employment verification.

Should You Refinance Your Mortgage?

Refinancing can be beneficial, but it requires careful consideration. Here are some factors to evaluate:

• Mortgage Rates: Compare your current rate to market rates. If rates have dropped or your credit score has improved, refinancing may save you money.
• Financial Goals: Determine if you want to reduce monthly payments, pay off your loan faster, or tap into home equity.
• Duration in Home: Calculate the break-even point to ensure refinancing is worthwhile.

The Bottom Line

Refinancing a government-backed mortgage is possible, whether you aim to borrow money, lower your payments, or switch to a fixed-rate loan. You can choose between a conventional loan or a government refinance program. Strong credit is often required to qualify for the best rates. Get your free credit report and score from Experian to see where you stand.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. Our team is here to help you navigate the refinancing process with confidence.

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