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Average 30-year mortgage rates are hovering in the high 6% range this week after spiking close to 7% in the wake of the latest inflation report last Wednesday, according to Zillow data.
March’s Consumer Price Index data came in hotter than expected, causing mortgage rates to rise. Until inflation slows further and the Federal Reserve is able to start lowering the federal funds rate, mortgage rates are likely to remain elevated.
Depending on what incoming data shows, we could even see rates tick above 7% for the first time since November 2023.
Next week, the US Bureau of Economic Analysis will release the latest personal consumption expenditures price index. The PCE price index is the Fed’s preferred measure of inflation.
If the latest PCE numbers support the narrative that inflation is remaining stubbornly high, mortgage rates could inch up further. But the PCE price index tracks a broader range of good and services than the CPI, so it’s possible this index could show some softening that didn’t appear in the CPI report.
Ultimately, it may take a few more months of data before we see inflation cool enough for the Fed to start cutting rates. Though they were initially pricing in a rate cut at the Fed’s meeting in June, investors are now betting that we won’t get the first cut until September, according to the CME FedWatch Tool. This will likely keep mortgage rates elevated throughout the spring and summer. But we could still see them go down later in 2024.
Current Mortgage Rates
Mortgage type
Average rate today
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mortgage rates on Zillow
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Current Refinance Rates
Mortgage type
Average rate today
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Zillow. See more
mortgage rates on Zillow
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Mortgage Calculator
Use our free mortgage calculator to see how today’s mortgage rates would impact your monthly payments. By plugging in different rates and term lengths, you’ll also understand how much you’ll pay over the entire length of your mortgage.
Mortgage Calculator
$1,161 Your estimated monthly payment
Total paid$418,177
Principal paid$275,520
Interest paid$42,657
Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months
Click “More details” for tips on how to save money on your mortgage in the long run.
Mortgage Rates for Buying a Home
30-Year Fixed Mortgage Increase (+0.28%)
The current average 30-year fixed mortgage rate is 6.89%, up 28 points from where it was this time last week, according to Zillow data. This rate is also up compared to a month ago, when it was 6.53%.
At 6.89%, you’ll pay $658 monthly toward principal and interest for every $100,000 you borrow.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
20-Year Fixed Mortgage Rates Rise (+0.34%)
The average 20-year fixed mortgage rate is 34 points up from where it was last week, and is sitting at 6.64%. This time last month, the rate was 6.22%.
With a 6.64% rate on a 20-year term, your monthly payment will be $754 toward principal and interest for every $100,000 borrowed.
A 20-year term isn’t as common as a 30-year or 15-year term, but plenty of mortgage lenders still offer this option.
The average 15-year mortgage rate is 6.12%, just a single basis point higher than last week. It’s up slightly compared to this time last month, when it was 6.03%.
With a 6.12% rate on a 15-year term, you’ll pay $850 each month toward principal and interest for every $100,000 borrowed.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
7/1 ARM Rates Increase Slightly (+0.11%)
The 7/1 adjustable mortgage rate is up 11 basis points from a week ago, currently at 6.80%. It’s down from a month ago, when it was at 7.02%.
At 6.80%, your monthly payment would be $652 toward principal and interest for every $100,000 borrowed — but only for the first seven years. After that, your payment would increase or decrease annually depending on the new rate.
5/1 ARM Rates Nearly Flat (+0.03%)
The average 5/1 ARM rate is 6.87%, a three-point increase from last week. It’s lower compared to where it was a month ago, when it was 7.06%.
Here’s how a 6.87% rate would affect you for the first five years: You’d pay $657 per month toward principal and interest for every $100,000 you borrow.
30-year FHA Rates Go Up (+0.19%)
The average 30-year FHA interest rate is 5.93% today, which is 19 basis points up from last week. This rate was 6.09% a month ago.
At 5.93%, you would pay $595 monthly toward principal and interest for every $100,000 borrowed.
FHA mortgages are good choices if you don’t qualify for a conforming mortgage. You’ll need a 3.5% down payment and 580 credit score to qualify.
30-year VA Rates Jump Above 6% (+0.42%)
The current VA mortgage rate is 6.25%, 42 basis points higher than this time last week. This rate was 5.95% a month ago.
With a 6.25% rate, your monthly payment would be $616 toward principal and interest for every $100,000 you borrow.
Mortgage Refinance Rates
30-Year Fixed Refinance Rates Inch Down (-0.08%)
The average 30-year refinance rate is 6.98%, eight basis points lower than last week. It’s also down slightly compared to a month ago, when it was 7.08%.
Here’s how a 6.98% rate would affect your monthly payments: You’d pay $664 toward principal and interest for every $100,000 borrowed.
Refinancing into a 30-year term can land you lower monthly payments, but you’ll ultimately pay more by refinancing into a longer term.
20-Year Fixed Refinance Rates Spike (+1.31%)
The current 20-year fixed refinance rate is 7.69%, which is up 131 basis points compared to a week ago. This rate was 6.53% this time last month.
A 7.69% rate on a 20-year term will result in a $817 monthly payment toward principal and interest for every $100,000 you borrow.
15-Year Fixed Refinance Rates Tick Up (+0.15%)
The average 15-year fixed refinance rate is 6.59%, which is 15 points higher compared to last week. It’s also up compared to this time a month ago, when it was at 6.34%.
A 6.59% rate on a 15-year term means you’ll pay $876 each month toward principal and interest for every $100,000 borrowed.
Refinancing into a 15-year term can save you money in the long run, because you’ll get a lower rate and pay off your mortgage faster than you would with a 30-year term. But it could result in higher monthly payments.
7/1 ARM Refinance Rates Drop a Full Percentage Point (-1.12%)
The average 7/1 ARM refinance rate is 6.49%, down 112 points from where it was last week. It’s also down a bit from a month ago, when it was 7.94%.
Refinancing into a 7/1 ARM with a 6.49% rate means your monthly payment toward principal and interest will be $631 for every $100,000 you borrow. This will be the payment for the first seven years, then your rate will change annually unless you refinance again.
5/1 ARM Refinance Rates Fall (-0.76%)
The 5/1 ARM refinance rate is 6.41%, which is lower than it was this time last week. It’s also down a lot compared to this time last month, when it was 7.59%.
A 6.41% rate will result in a monthly payment of $626 toward principal and interest for every $100,000 borrowed. You’ll pay this amount for the first five years of your new mortgage.
The 30-year FHA refinance rate is 5.95%, which is 19 points higher than last week. This rate was 5.49% this time last month.
A 5.95% refinance rate would lead to a $596 monthly payment toward the principal and interest per $100,000 borrowed.
30-Year VA Refinance Rates Inch Up (+0.12)
The average 30-year VA refinance rate is 5.91%, which is up 12 points compared to where it was was last week. This rate was 5.82% a month ago.
At 5.91%, your new monthly payment would be $594 toward principal and interest for every $100,000 you borrow.
Are Mortgage Rates Going Down?
Mortgage rates started ticking up from historic lows in the second half of 2021 and increased over three percentage points in 2022. Mortgage rates also rose dramatically in 2023, though they started trending back down toward the end of the year. Though rates have been somewhat elevated recently, they should go down by the end of 2024.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease further. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate mortgages to write unbiased product reviews.
Mortgage rates are down significantly this week. Average 30-year mortgage rates have dropped nearly 30 basis points from a week ago, according to Zillow data. And they could drop further this year.
As inflation slows and the economy comes into better balance, mortgage rates are expected to go down. Inflation has been a bit stickier than expected over the last few months, but Federal Reserve officials have indicated that they still believe it will continue to slow and enable them to start lowering the federal funds rate this year. This should take a lot of upward pressure off of mortgage rates and allow them to decrease.
Right now, investors are pricing in a Fed cut in June, according to the CME FedWatch Tool. So we could see mortgage rates start trending down more substantially in just a few months.
Current Mortgage Rates
Mortgage type
Average rate today
This information has been provided by
Zillow. See more
mortgage rates on Zillow
Real Estate on Zillow
Current Refinance Rates
Mortgage type
Average rate today
This information has been provided by
Zillow. See more
mortgage rates on Zillow
Real Estate on Zillow
Mortgage Calculator
Use our free mortgage calculator to see how today’s mortgage rates would impact your monthly payments. By plugging in different rates and term lengths, you’ll also understand how much you’ll pay over the entire length of your mortgage.
Mortgage Calculator
$1,161 Your estimated monthly payment
Total paid$418,177
Principal paid$275,520
Interest paid$42,657
Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months
Click “More details” for tips on how to save money on your mortgage in the long run.
Mortgage Rates for Buying a Home
30-Year Fixed Mortgage Rates Fall (-0.27%)
The current average 30-year fixed mortgage rate is 6.32%, down 27 points from where it was this time last week, according to Zillow data. This rate is also down compared to a month ago, when it was 6.59%.
At 6.32%, you’ll pay $620 monthly toward principal and interest for every $100,000 you borrow.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
20-Year Fixed Mortgage Rates Go Down (-0.24%)
The average 20-year fixed mortgage rate is 24 points down from where it was last week, and is sitting at 5.99%. This time last month, the rate was 6.30%.
With a 5.99% rate on a 20-year term, your monthly payment will be $716 toward principal and interest for every $100,000 borrowed.
A 20-year term isn’t as common as a 30-year or 15-year term, but plenty of mortgage lenders still offer this option.
15-Year Fixed Mortgage Rates Decrease (-0.33%)
The average 15-year mortgage rate is 5.64%, down from last week. It’s also down compared to this time last month, when it was 5.98%.
With a 5.64% rate on a 15-year term, you’ll pay $825 each month toward principal and interest for every $100,000 borrowed.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
7/1 ARM Rates Plunge (-0.60%)
The 7/1 adjustable mortgage rate is down 60 basis points from a week ago, currently at 6.18%. It’s also down from a month ago, when it was at 6.47%.
At 6.18%, your monthly payment would be $611 toward principal and interest for every $100,000 borrowed — but only for the first seven years. After that, your payment would increase or decrease annually depending on the new rate.
5/1 ARM Rates Drop Nearly Half a Percentage Point (-0.49%)
The average 5/1 ARM rate is 6.51%, a 49-point decrease from last week. It’s down from where it was a month ago, when it was 6.74%.
Here’s how a 6.51% rate would affect you for the first five years: You’d pay $633 per month toward principal and interest for every $100,000 you borrow.
30-year FHA Rates Nearly Flat (+0.03%)
The average 30-year FHA interest rate is 5.65% today, which is just 3 basis points up from last week. This rate was 6.11% a month ago.
At 5.65%, you would pay $577 monthly toward principal and interest for every $100,000 borrowed.
FHA mortgages are good choices if you don’t qualify for a conforming mortgage. You’ll need a 3.5% down payment and 580 credit score to qualify.
30-year VA Rates Lower (-0.38%)
The current VA mortgage rate is 5.54%, 38 basis points lower than this time last week. This rate was 5.92% a month ago.
With a 5.54% rate, your monthly payment would be $570 toward principal and interest for every $100,000 you borrow.
Mortgage Refinance Rates
30-Year Fixed Refinance Rates Increase (+0.69%)
The average 30-year refinance rate is 7.69%, 69 basis points higher than last week. It’s nearly flat compared to a month ago, when it was 7.65%.
Here’s how a 7.69% rate would affect your monthly payments: You’d pay $712 toward principal and interest for every $100,000 borrowed.
Refinancing into a 30-year term can land you lower monthly payments, but you’ll ultimately pay more by refinancing into a longer term.
20-Year Fixed Refinance Rates Up Over a Full Percentage Point (+1.20%)
The current 20-year fixed refinance rate is 7.66%, which is 120 basis points up compared to a week ago. This rate was 6.42% this time last month.
A 7.66% rate on a 20-year term will result in a $815 monthly payment toward principal and interest for every $100,000 you borrow.
15-Year Fixed Refinance Rates Go Up (+0.58%)
The average 15-year fixed refinance rate is 6.92%, which is more than half a percentage point higher compared to last week. It’s down just a little bit compared to this time a month ago, when it was at 6.99%.
A 6.92% rate on a 15-year term means you’ll pay $894 each month toward principal and interest for every $100,000 borrowed.
Refinancing into a 15-year term can save you money in the long run, because you’ll get a lower rate and pay off your mortgage faster than you would with a 30-year term. But it could result in higher monthly payments.
7/1 ARM Refinance Rates Tick Down (-0.32%)
The average 7/1 ARM refinance rate is 6.83%, down 32 points from where it was last week. It’s up a bit from a month ago, when it was 6.69%.
Refinancing into a 7/1 ARM with a 6.83% rate means your monthly payment toward principal and interest will be $654 for every $100,000 you borrow. This will be the payment for the first seven years, then your rate will change annually unless you refinance again.
5/1 ARM Refinance Rates Fall Dramatically (-1.11%)
The 5/1 ARM refinance rate is 6.44%, which is significantly lower than it was this time last week. It’s up a bit compared to this time last month, when it was 6.34%.
A 6.44% rate will result in a monthly payment of $628 toward principal and interest for every $100,000 borrowed. You’ll pay this amount for the first five years of your new mortgage.
30-Year FHA Refinance Rates Drop a Bit (-0.10%)
The 30-year FHA refinance rate is 5.52%, which is 10 points lower than last week. This rate was 5.61% this time last month.
A 5.52% refinance rate would lead to a $569 monthly payment toward the principal and interest per $100,000 borrowed.
30-Year VA Refinance Rates Decrease (-0.19%)
The average 30-year VA refinance rate is 5.56%, which is down compared to where it was was last week. This rate was 5.78% a month ago.
At 5.56%, your new monthly payment would be $572 toward principal and interest for every $100,000 you borrow.
Are Mortgage Rates Going Down?
Mortgage rates started ticking up from historic lows in the second half of 2021 and increased over three percentage points in 2022. Mortgage rates also rose dramatically in 2023, though they started trending back down toward the end of the year. Though rates have been somewhat elevated recently, they should go down by the end of 2024.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease further. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.
Speaking with your current lender about refinancing options is a great first step if you currently have low credit.
Key Takeaways:
Refi programs exist to specifically help low-credit applicants.
A cosigner with a high credit score can help you successfully apply for refinancing.
Mortgages with APR may be more costly in the long run.
When you refinance your mortgage, you’re basically replacing that mortgage with a different loan. Your lender will then use that new mortgage to pay off the old one first, so you’ll only have one monthly payment.
A refinance can have different interest rates and terms. A lower interest rate can result in less expensive monthly payments and reduce the overall cost of your loan. Conversely, shorter terms can help you pay down a new loan much faster via larger monthly payments.
It’s certainly possible to refinance with bad credit once you know your options. We’ll discuss several popular options and explain how Credit.com can help you find strong mortgage rates based on your current circumstances.
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Can You Refinance With Bad Credit?
Your credit score plays a major role when you apply for a loan, but refinancing and is certainly possible. In fact, Federal Housing Administration (FHA) loans can help you secure financing with a credit score between 500 and 579 if you provide a 10% down payment.
Five Options for Refinancing With Bad Credit
It’s possible to secure new funding with low credit. Below are five of the most popular options for low-credit refinancing.
1. Talk to Your Current Lender
If you’re in good standing with your current mortgage lender, talk to them about refinance options. Being in good standing means you’ve regularly made on-time mortgage payments and haven’t had any issues with your lender.
Lenders make money on your mortgage. If you want to refinance to extend your mortgage payments—to reduce your monthly payments, for example—the lender could make more money off your loan in the future. Your current lender may want to keep your business and could be more likely to work with you.
2. Use a Cosigner
A cosigner is someone willing to help you take on the responsibility of making regular mortgage payments. Cosigners with good credit can help you secure funding you normally wouldn’t be eligible for.
Cosigners can be spouses, relatives, close friends, or business partners. If you’re attempting this approach, make sure you have a strong financial plan to show your cosigner that you’ll make timely payments. With a cosigner, your credit history is linked, so missing a payment can hurt both your credit scores.
3. Use an FHA Streamline, Simple, or Cash-Out Refinance Loan
FHA-backed mortgages are known to have less strict credit requirements, and the same applies to refinances. If you have bad credit and late payments on your credit report, you might consider FHA programs—especially if you already have an FHA loan.
Streamline FHA Refinance
Streamline FHA refinance programs are for those with an FHA mortgage who want to refinance with an FHA loan. Your mortgage must be current, and you can’t get more than $500 cash out of this refinance. Appraisals aren’t a requirement for these loans.
There are two types of streamline loans:
Credit qualifying: You provide the income and credit documentation you normally would when getting a mortgage. If you’re taking one of the borrowers off the mortgage during the refi, you must use this option.
Noncredit qualifying: At least some credit review—and a review of past performance on your existing mortgage—is required. But it may not be as comprehensive as a credit-qualifying loan.
Simple Refinance
Simple refinance is another option that doesn’t allow cash out. This program is only relevant for refinances on primary residences or secondary residences with HUD approval. You also have to be up-to-date on mortgage payments.
Cash-Out Refinance
FHA cash-out refinance programs let you get some cash back during refinance if you have equity in your home. You’re limited to 85% to 95% of equity, depending on the status of your current mortgage.
To qualify, you must have had the property for at least 12 months and made the last 12 mortgage payments in the month they were due. Other credit and financial factors may also apply.
4. Apply for a VA Refi Program
The VA provides several refinance options for those who are eligible because they’re qualifying veterans, active-duty service members or eligible family members. As with FHA refinance options, you can find programs that support straight or cash-out refinance.
Interest Rate Reduction Refinance Loan
This is a refinance option that gets veterans a lower interest rate on their mortgage. Here’s who’s eligible:
Veterans
Active-duty service members
Members of the National Guard or Reserves called to active duty
Some surviving spouses
Current Reserve and National Guard members (after six years of qualifying service)
Cash-Out Refinance
This VA refinance has the same eligibility requirements as the Interest Rate Reduction Refinance Loan. The loans typically come at market rates and include a VA funding fee.
5. Consider the USDA Streamlined Assist Refinance Program
The United States Department of Agriculture (USDA) offers a few refinance programs but notes that the Streamlined Assist refi is the most popular. It doesn’t require an appraisal unless a subsidy is involved. A full credit review is not required. However, the loan must have been paid on time for the previous 12 months and is only available for certain types of homes.
Improve Your Credit Before You Refinance
If you can’t find a refinance that works with your credit score—or you don’t find one that works for you—you might want to improve your credit before applying for a refi. Start by accessing 28 of your FICO® scores via ExtraCredit® to see where you stand.
You can improve your credit by:
Making on-time payments. Payment history accounts for a large part of your credit score.
Paying down revolving credit, such as credit cards. Credit utilization is another big part of your score.
Dispute credit errors on your report with the credit bureaus to repair your score.
Find the Right Mortgage for You
No matter where you’re at, finding a mortgage is an exciting—and overwhelming—process. Whether you’re ready to start looking for a refinance now or want to wait until you’ve improved your credit, Credit.com can help you with your goals.
We offer tools that help you find competitive mortgage rates and provide a mortgage calculator for anticipating your financial needs.
FHA loans have been making homeownership more accessible for decades. Tailored to borrowers with lower credit, the FHA makes it possible to buy a house with a credit score of just 580 and only 3.5% down.
But home buyers aren’t the only ones who can benefit. For current homeowners, an FHA refinance may let you access low rates and home equity, even without great credit.
Not sure whether you’ll qualify for a mortgage? Check out the FHA program. You might be surprised.
Verify your FHA loan eligibility. Start here
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>Related: How to buy a house with $0 down: First-time home buyer
What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA).
FHA insurance protects mortgage lenders, allowing them to offer loans with low interest rates, easier credit requirements, and low down payments (starting at just 3.5%).
Thanks to their flexibility and low rates, FHA loans are especially popular with first-time home buyers, home shoppers with low or moderate incomes, and/or lower-credit home buyers.
But FHA financing isn’t limited to a certain type of buyer — anyone can apply.
Verify your FHA loan eligibility. Start here
How does an FHA loan work?
The first thing to know about FHA mortgages is that the Federal Housing Administration doesn’t actually lend you the money. You get an FHA mortgage loan from an FHA-approved bank or lender, just like you would any other type of home mortgage loan.
The FHA’s role is to insure these mortgages, offering lenders protection in case borrowers can’t pay their loans back. In turn, this lets mortgage lenders offer FHA loans with lower interest rates and looser standards for qualifying.
The one catch — if you want to call it that — is that you pay for the FHA insurance that protects your mortgage lender. This is called “mortgage insurance premium” or MIP for the life of the loan or until the FHA home loan is refinanced into another type of mortgage. We go over this in detail below.
Types of FHA loans
FHA loans offer various options to meet different home buying needs. These government-backed loans are designed to make homeownership more accessible, especially for those with less-than-perfect credit scores or limited savings.
Each type of FHA loan is tailored to different financial situations and home buying needs. Here’s what you can expect.
Compare FHA loan quotes from multiple lenders. Start here
FHA mortgage loan
An FHA mortgage is ideal for first-time home buyers, requiring a minimum credit score of 580 for a 3.5% down payment. Those with credit scores between 500 and 579 can still qualify for a 10% down payment. These loans are popular due to their lenient credit score requirements and low-down payment options.
FHA rate-and-term refinance
An FHA refinance loan is suited for borrowers looking to improve their loan terms or lower interest rates, especially if their credit scores have improved since obtaining their original mortgage. It offers a way to adjust loan terms to better fit current financial situations.
FHA Streamline Refinance
For current FHA loan holders, the FHA Streamline Refinance provides an efficient way to refinance with minimal documentation and underwriting. It often results in lower interest rates and can potentially reduce mortgage insurance premiums. This option is advantageous for those who want to refinance without a complicated process.
FHA cash-out refinance
An FHA cash-out refinance allows homeowners to tap into their home equity, converting it into cash. It requires a minimum credit score of 620, and borrowers must leave at least 15% equity in their home after the refinance. It’s suitable for those needing extra funds for expenses or investments.
FHA Home Equity Conversion Mortgage (HECM)
HECM is a reverse mortgage for homeowners aged 62 and older, allowing the conversion of home equity into cash. It provides financial flexibility for seniors by enabling access to their home equity without selling the home.
FHA 203(k) loan
The FHA 203(k) loan is designed for home purchases requiring renovations. It combines the cost of the home and renovation expenses into one loan. Borrowers must meet specific credit score requirements and ensure that renovations are completed within six months.
FHA Energy Efficient Mortgage
This loan type allows borrowers to include energy-efficient upgrades in their FHA loan. It’s aimed at reducing utility costs and increasing the home’s environmental friendliness, thereby potentially increasing its value.
Section 245(a) loan
The Section 245(a) program is for borrowers expecting an increase in their income. It offers a graduated payment schedule that starts low and increases over time, aligning with anticipated income growth. This loan is particularly beneficial for young professionals expecting career advancement.
Check your FHA loan eligibility. Start here
FHA loan requirements
Homeownership can be a liberating experience, especially for first-time buyers. With their flexible guidelines and government backing, FHA home loans provide a welcoming path.
Understanding FHA loan requirements can make the process much easier, opening the door to a future in your ideal home.
Check your FHA loan eligibility. Start here
To be eligible for an FHA loan, applicants must adhere to specific guidelines:
The property must undergo a home appraisal by an FHA-approved appraiser.
The property must serve as the applicant’s primary residence; investment properties and second homes are not eligible.
Occupancy of the property is required within two months following the closing.
A mandatory inspection is conducted to ensure the property meets FHA’s basic standards.
There are a few more specific conditions to qualify, such as a down payment amount, mortgage insurance, credit score, loan limits, and income requirements.
FHA loan down payment requirements
FHA loans require a minimum down payment, which varies based on credit score. For credit scores of 580 and above, a minimum down payment of 3.5% is required. Borrowers with credit scores between 500 and 579 must make a 10% down payment.
FHA mortgage insurance premiums
FHA mortgage insurance premium (MIP) is what makes the FHA program possible. Without the MIP, FHA-approved lenders would have little reason to make FHA-insured loans.
There are two kinds of MIP required for an FHA loan. One is paid as a lump sum when you close the loan, and the other is an annual premium, which becomes less expensive each year as you pay off the loan balance:
Upfront Mortgage Insurance Premium (UFMIP) = 1.75% of the loan amount for current FHA loans and refinances
Annual Mortgage Insurance Premium (MIP) = 0.85% of the loan amount for most FHA loans and refinances
MIP is split into monthly payments that are included in your mortgage payment. You’ll have to pay FHA insurance for the life of the loan or if you refinance into another type of mortgage loan.
The good news is that, as a homeowner or home buyer, your FHA loan’s MIP rates have dropped. Today’s FHA MIP costs are now as much as 50 basis points (0.50%) lower per year than they were in previous years.
Also, you have ways to reduce what you’ll owe in FHA MIP.
Depending on your down payment and loan term, you can reduce the length of your mortgage insurance to 11 years instead of the entire loan.
Loan term
Original down payment
MIP duration
20, 25, 30 years
Less than 10%
Life of loan
20, 25, 30 years
More than 10%
11 years
15 years or less
Less than 10%
Life of loan
15 years or less
More than 10%
11 years
Or, you could refinance out of FHA MIP at a later date.
With FHA interest rates as competitive as they are today, refinancing could reduce your monthly mortgage payments and cancel your mortgage insurance premium if you have enough equity in the home.
Check your FHA loan rates. Start here
FHA loan credit score minimums
The minimum credit score requirement for an FHA loan is 500. However, a score of 580 or higher allows for a lower down payment. Credit scores directly impact loan terms and down payment amounts.
Debt-to-income ratio
FHA loans consider the borrower’s debt-to-income (DTI) ratio, a measure of monthly debt payments against monthly income. The FHA prefers a DTI ratio of no more than 43%, though exceptions can be made for higher ratios with compensating factors.
Income and employment requirements
There is no specific income threshold for FHA loans, but borrowers must demonstrate steady employment history. Verification includes pay stubs, W-2s, tax returns, and bank statements.
FHA loan limits
Loan limits for FHA loans vary by county. However, starting January 1, 2024, the new FHA loan limit will be $498,257 for a single-family home in most parts of the country. Limits increase for 2-, 3-, and 4-unit properties.
FHA loan rates
Interest rates for FHA loans are competitive and can vary based on factors such as prevailing market rates, borrower’s credit score, income, loan amount, down payment, and DTI ratio. Government backing often enables lenders to offer lower rates compared to conventional mortgages.
Compare your FHA loan rates from multiple lenders. Start here
Today’s rates for a 30-year, fixed-rate FHA loan start at % (% APR), according to The Mortgage Reports’ daily rate survey.
Thanks to their government backing, FHA loan rates are competitive even for lower-credit borrowers. But interest rates can vary a lot from one lender to the next, so be sure to shop around for your best offer.
FHA loan benefits
Check your FHA loan eligibility. Start here
1. Lower down payment: Just 3.5 %
For today’s home buyers, there are only a few mortgage options that allow for down payments of 5% or less. The FHA loan is one of them.
With an FHA mortgage, you can make a down payment as small as 3.5% of the home’s purchase price. This helps home buyers who don’t have a lot of money saved up for a down payment along with home buyers who would rather save money for moving costs, emergency funds, or other needs.
2. FHA allows 100% gift funds for the down payment and closing costs
The FHA is generous with respect to using gifts for a down payment. Very few loan programs will allow your entire down payment for a home to come from a gift. The FHA will.
Via the FHA, your entire 3.5% down payment can be a gift from parents or another family member, an employer, an approved charitable group, or a government homebuyer program.
If you’re using a down payment gift, though, you’ll need to follow the process for gifting and receiving funds.
3. FHA loans allow higher debt-to-income ratios
FHA loans also allow higher debt-to-income ratios.
Your debt-to-income ratio, or DTI, is calculated by comparing two things: your debt payments and your before-tax income.
For instance, if you earn $5,000 a month and your debt payment total is $2,000, your DTI is 40%.
Officially, FHA maximum DTIs are as follows.
31% of gross income for housing costs
43% of gross income for housing costs plus other monthly obligations like credit cards, student loans, auto loans, etc.
However, a 43% DTI is actually on the low end for most FHA borrowers. And FHA will allow DTI ratios as high as 50%. Although to get approved at such a high ratio, you’ll likely need one or more compensating factors — for instance, a great credit score, significant cash savings, or a down payment exceeding the minimum.
In any case, FHA is more lenient in this area than other mortgage loan options.
Most conventional mortgage programs — those offered by Fannie Mae and Freddie Mac — only allow debt-to-income ratios between 36% and 43%.
With down payments of less than 25%, for example, Fannie Mae lets you go to 43% DTI for FICOs of 700 or higher. But most people don’t get conventional loans with debt ratios that high.
4. FHA loans accept lower credit scores
Officially, the minimum credit scores required for FHA mortgage loans are:
580 or higher with a 3.5% down payment
500-579 with a 10% down payment
High credit scores are great if you have them. But past credit history mistakes take a while to repair.
FHA loans can help you get into a home without waiting a year or more for your good credit to reach the “excellent” level. Other loan programs are not so forgiving when it comes to your credit rating.
Fannie Mae and Freddie Mac (the agencies that set rules for conventional loans) say they accept FICOs as low as 620. But in reality, some lenders impose higher minimum credit scores.
5. FHA even permits applicants with no credit scores
What if an applicant has never had a credit account? Their credit report is, essentially, blank.
FHA borrowers with no credit scores may also qualify for a mortgage. In fact, the U.S. Department of Housing and Urban Development (HUD) prohibits FHA lenders from denying an application based solely on a borrower’s lack of credit history.
The FHA allows borrowers to build non-traditional credit as an alternative to a standard credit history. This can be a huge advantage to someone who’s never had credit scores due to a lack of borrowing or credit card usage in the past.
Borrowers can use payment histories on items such as utility bills, cell phone bills, car insurance bills, and apartment rent to build non-traditional credit.
“Not all lenders who are FHA approved offer these types of loans, so check with your loan officer individually,” cautions Meyer.
6. FHA loans can be up to $ in most of the U.S.
Most mortgage programs limit their loan sizes, and many of these limits are tied to local housing prices.
FHA mortgage limits are set by county or MSA (Metropolitan Statistical Area), and range from $ to $ for single-family homes in most parts of the country.
Limits are higher in Alaska, Hawaii, the U.S. Virgin Islands, and Guam, and also for duplexes, triplexes, and four-plexes.
7. FHA also allows extended loan sizes
As another FHA benefit, FHA loan limits can be extended where home prices are more expensive. This lets buyers finance their home using FHA even though home prices have skyrocketed in certain high-cost areas.
In Orange County, California, for example, or New York City, the FHA will insure up to $ for a mortgage on a single-family home.
For 2-unit, 3-unit and 4-unit homes, FHA loan limits are even higher — ranging up to $.
If your area’s FHA’s loan limits are too low for the property you’re buying, you’ll likely need a conventional or jumbo loan.
8. If you have an FHA loan, you can lower your rate with an FHA Streamline Refinance
Another advantage for FHA-backed homeowners is access to the FHA Streamline Refinance.
The FHA Streamline Refinance is an exclusive FHA program that offers homeowners one of the simplest, quickest, and most affordable paths to refinancing.
An FHA Streamline Refinance requires no credit score checks, no income verifications, and home appraisals are waived completely.
In addition, via the FHA Streamline Refinance, homeowners with a mortgage pre-dating June 2009 get access to reduced FHA mortgage insurance rates.
Verify your FHA loan eligibility. Start here
FHA loan disadvantages
What is the downside to an FHA loan? Among the numerous benefits of FHA loans, there are certain disadvantages that potential borrowers should be aware of. These drawbacks can impact the overall cost and flexibility of the loan.
Here are the downsides that you should know about FHA home loans.
FHA loan mortgage insurance premiums
One of the primary drawbacks of FHA loans is the mandatory mortgage insurance premiums. These include an upfront premium at closing, generally 1.75% of the loan amount, and ongoing monthly payments. This additional cost can make FHA loans more expensive over the long term
Loan limits
One notable limitation of FHA loans is the lower loan limits compared to conventional loans, which can be restrictive for higher-income buyers. The FHA mortgage limit for a one-unit property ranges from $ to $ for single-family homes in most parts of the country, which may not be sufficient in areas with higher property values.
Strict property requirements
FHA loans come with stringent property requirements. The purchased home must be the borrower’s primary residence and must meet specific safety and condition standards. This requirement can limit the types of properties that qualify for an FHA loan.
FHA loan alternatives
Alternative loans, like USDA and VA loans, offer distinct advantages, such as no down payment requirements, but come with specific eligibility criteria. Understanding these alternatives ensures you make a well-informed decision about the type of mortgage that’s right for you.
Conventional 97
The Conventional 97 program comes with a down payment requirement of just 3%. It stands out due to the absence of income limits and mandatory home buyer education, making it accessible to a broader range of homebuyers.
Check your conventional loan eligibility. Start here
HomeReady Mortgage by Fannie Mae
The HomeReady mortgage program is designed for low- to moderate-income families, allowing a home purchase with only a 3% down payment. Furthermore, this program permits the entire downpayment and closing costs to be covered by gifts or grants, offering significant financial flexibility.
Freddie Mac Home Possible
The Home Possible loan is notable for its reduced mortgage insurance costs compared to other similar programs. With a 3% down payment requirement and lower ongoing costs, Home Possible is an attractive alternative for those looking to save on mortgage insurance.
USDA loans
USDA loans, backed by the U.S. Department of Agriculture, are an attractive alternative, especially for moderate-income buyers in rural areas. They don’t require a down payment, which is a significant advantage. However, eligibility for USDA loans is restricted based on income and geographical limits, and not every property qualifies for this type of financing.
VA loans
VA loans are another viable alternative, particularly for U.S. military service members, veterans, and certain surviving spouses. Like USDA loans, VA loans also require no down payment. However, eligibility for VA loans is exclusive to the military community, limiting their accessibility to the general public.
FAQ: FHA loans
Can I choose between a fixed rate and an adjustable-rate FHA loan?
Yes, FHA loans offer both fixed-rate and adjustable-rate (ARM) options. A fixed-rate FHA loan provides a consistent interest rate and monthly payment for the life of the loan, ideal for those who prefer stability. An adjustable-rate FHA loan, on the other hand, has an interest rate that can change over time, typically offering lower initial rates.
Do FHA loans have lower interest rates?
FHA loans often have lower interest rates compared to many conventional loan options. This is largely due to the government backing of FHA loans, which reduces the risk for lenders. As a result, lenders are generally able to offer more competitive mortgage rates to borrowers. However, the actual interest rate you’ll receive on an FHA loan can vary based on several factors, including your credit score, loan amount, and the current market conditions. It’s always a good idea to compare rates from multiple lenders to ensure you’re getting the best deal possible for your situation.
Are FHA loans assumable?
Yes. A little-known FHA benefit is that the agency will allow a home buyer to assume the existing FHA mortgage on a home being purchased. The buyer must still qualify for the mortgage with its existing terms but, in a rising mortgage rate environment, it can be attractive to assume a home seller’s loan. Five years from now, for example, a buyer of an FHA-insured home could inherit a seller’s sub-3 percent mortgage rate. This can make it easier to sell the home in the future.
Can you buy a rental property with an FHA loan?
While you can’t buy a true rental property with an FHA loan, you can buy a multi-unit property — a duplex, triplex, or fourplex — live in one of the units, and rent out the others. The rent from the other units can partially, or even fully, offset your mortgage payment.
Are closing costs higher for FHA loans?
Closing costs are about the same for FHA and conventional loans with a couple of exceptions. First, the appraiser’s fee for an FHA loan tends to be about $50 higher. Also, if you choose to pay your upfront MIP in cash (instead of including this 1.75% fee in your loan amount), this one-time fee will be added to your closing costs. Additionally, the fee can be rolled into your loan amount.
What credit score do I need for an FHA loan?
Most borrowers will need a minimum credit score of 580 to get an FHA loan. However, home buyers who can put at least 10% down are eligible to qualify with a 500 score. Yet, each lender may have their own credit score minimums, separate to those established by the Federal Housing Administration.
What is the loan-to-value ratio requirement for FHA loans?
The loan-to-value (LTV) ratio for FHA loans typically cannot exceed 96.5%, meaning you can borrow up to 96.5% of your home’s value. This high LTV ratio is part of what makes FHA loans accessible, especially for first-time homebuyers who might not have substantial savings for a down payment.
How does PMI work with FHA loans?
For FHA loans, the equivalent of private mortgage insurance (PMI) is the mortgage insurance premium (MIP). MIP is required for all FHA loans, regardless of the down payment or loan-to-value ratio. This insurance protects lenders from losses in case of borrower defaults and is included in both upfront and ongoing mortgage costs.
What happens if I default on an FHA loan?
If you default on an FHA loan, the lender can initiate foreclosure proceedings. The FHA loan program, backed by the Federal Housing Administration, is designed to minimize the risk of defaults by offering more lenient qualification criteria. However, consistent failure to make mortgage payments may lead to foreclosure, impacting your credit score and homeownership status.
Today’s FHA loan rates
Now is an opportune time to consider an FHA loan, with current mortgage rates being historically competitive.
FHA loan interest rates are typically among the most competitive. To capitalize on these favorable rates, start by comparing offers from FHA-approved lenders.
Finding the most affordable loan could be just a few clicks away. Begin your journey towards homeownership today by exploring your options and discovering the best rates available for your financial situation.
Time to make a move? Let us find the right mortgage for you
For first-time buyers — or anyone facing financial hurdles — getting an FHA loan can help make homeownership a reality. With insurance from the Federal Housing Administration, lenders can afford to offer loans with a lower down payment, lower closing costs, and less restrictive qualifying credit requirements.
But can you refinance an FHA loan? Yes, FHA loans are available for those looking to refinance an existing mortgage rather than take out a new one — whether or not that existing mortgage is itself an FHA loan. However, there are a variety of different ways to go about refinancing an FHA loan, and which is right for you will depend on your circumstances. Here’s what you need to know.
Understanding FHA Refinancing
Like any FHA loan, FHA refinancing loans are insured by the FHA — and therefore available with easier qualifying requirements and lower costs than other types of conventional loans may be. Refinancing your mortgage with an FHA refinance loan could help you save money on interest over time by scoring a lower rate, lowering your monthly payments, or even accessing cash by leveraging your home’s equity. And yes, you can refinance an FHA loan, or another type of existing home loan with an FHA refinancing loan. However, the specific FHA refinance requirements vary depending on your circumstances.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
Types of FHA Loan Refinancing
There are four main options when it comes to FHA loan refinancing: Simple refinancing, Streamline refinancing, cash-out refinancing, and 203(k) refinancing. Which is right for you will depend on what kind of loan you have — and why you’re refinancing in the first place.
FHA Simple Refinance
FHA Simple refinancing is for those whose original home loan is an FHA loan. With an FHA Simple refinance, you’ll simply — as the name implies — refinance your home, using a new FHA loan to pay off the existing one, ideally with a lower monthly payment or interest rate to make it worth your while. You may also be able to switch between fixed and adjustable interest rates.
Unlike some other types of FHA refinancing, you won’t be able to access any cash using this type of refinance, so it’s not a viable option for homeowners attempting to leverage home equity to pay for other expenses. In addition, it has slightly stricter qualification requirements than FHA Streamline refinancing, which requires less credit documentation and underwriting. Although credit score requirements vary by lender, most FHA Simple refinance programs require a minimum credit score of 580.
FHA Streamline Refinance
The FHA Streamline refinancing option also follows the logic of its name: The underwriting and qualification process is less intense than other types of FHA refinancing. In addition, unlike the FHA Simple refinance option, a home appraisal is not required. You can also take out up to $500 in cash against your home equity with an FHA Streamline refinance loan.
To qualify for FHA Streamline refinancing, your original home loan will also need to be FHA insured, and payments must not be delinquent. The FHA also requires that the new loan result in a financial benefit for the borrower. Of course, you wouldn’t be going through the process and expense of refinancing if you had nothing to gain in the bargain.
FHA Cash-Out Refinance
FHA cash-out refinancing allows borrowers to leverage their home equity to take out cash that can be used for any purpose. To make this work, a new, larger loan is taken out, which is used to refinance the existing home loan — which need not be FHA insured — as well as to provide cash value.
Using an FHA cash-out refinance loan, homeowners may be able to lower their payments or interest rates while also accessing lump-sum cash that can be used for just about any purpose under the sun. Again, however, the underwriting and qualification process for FHA cash-out refinance loans may be more intense than Streamline loans — though a cash-out refi is still accessible to most borrowers with a credit score of 580 or higher and a debt-to-income ratio (DTI) of 43% or less.
FHA 203(k) Refinance
Finally, the FHA 203(k) loan, also known as rehabilitation loan, allows homeowners to take out money for the purpose of restoring, rehabilitating, or repairing their home along with purchasing it. FHA 203(k) loans can be used for an original purchase or a refinance, and homeowners with a non-FHA loan can apply for 203(k) refinancing, and may find FHA-insured rates are lower than those of other home improvement loans. 💡 Quick Tip: Lowering your monthly payments with a mortgage refinance from SoFi can help you find money to pay down other debt, build your rainy-day fund, or put more into your 401(k).
Comparing FHA Refinance vs. Conventional Loan Refinance
Why choose to refinance with an FHA loan rather than a conventional one? Or vice versa? There are pros and cons to consider either way you go. For instance, although FHA refinance loans tend to come with more accessible qualification requirements, some types are only available for those with existing FHA loans — and all of them require a mortgage insurance premium (MIP). The important thing is to consider all your options so you can make an informed decision. Let’s take a closer look.
Pros and Cons of Refinancing with an FHA Loan
While there are many benefits to refinancing with an FHA loan, there are some drawbacks to consider, too.
Pros of refinancing with an FHA loan:
• Lower interest rates and down payments than some conventional refinancing options
• Easier qualification process
• Different options available, including cash-out options
Cons of refinancing with an FHA loan:
• MIP (mortgage insurance premium) required on all FHA loans; conventional refinance loans will not require mortgage insurance if you’ve paid off at least 20% of your home’s value.
• Some types of FHA refinance loans are only available to those with existing FHA home loans.
Differences in Requirements and Benefits
In addition to the pros and cons of FHA loan refinancing, there are also differences in the requirements and benefits for FHA versus conventional home refinancing loans. For instance, in most cases, FHA loans require a minimum credit score of just 580, whereas conventional loans might have a minimum credit score starting at 620 or higher.
And while FHA loans often come with lower interest rates, they always come with a mortgage insurance requirement — whereas conventional loans may not require private mortgage insurance (PMI), if you already own at least 20% of your home’s equity.
Finally, FHA refinancing loan options may be somewhat limited, depending on your existing home loan and your motivations for refinancing. Some types of FHA refinancing loans are only available to homeowners who already have an FHA-insured mortgage, which may make them inaccessible to other borrowers.
Eligibility and FHA Refinance Requirements
So, what does it take to secure an FHA home loan? While requirements vary by lender, here are some basic rules of thumb:
Qualifying Factors for Refinancing an FHA Loan
As mentioned above, certain types of FHA refinance loans are only available to those who already have an FHA-insured mortgage loan. In addition, only FHA loans that are not delinquent — i.e., you’re up to date on your payments — may qualify for refinancing.
Credit Score Guidelines
While FHA-insured loans tend to have lower minimum credit scores than conventional refinance loans, lenders do still have a minimum. In most cases, it’s 580—though specifics may vary by lender.
Loan-to-Value Ratio (LTV)
A home’s loan-to-value (LTV) ratio refers to what percentage of the home’s current market value you’re taking out a loan for. Ideally, those who are refinancing their homes have a lower loan-to-value ratio — meaning they owe less of their home’s total value than they did when it was first purchased. Still, the LTV is one factor lenders look at when qualifying borrowers for an FHA refinance loan; the lower your LTV, the better.
Employment and Income Verification
Lenders have a vested interest in making sure you’ll be able to repay your loan, so a lender will verify your employment situation and income before qualifying you for a new loan, whether you’re taking out an original mortgage or refinancing.
Debt-to-Income Ratio (DTI)
Your debt-to-income, or DTI, ratio refers to the proportion of your available income each month that goes toward existing debts. While FHA loans have a higher maximum DTI than other types — borrowers with DTIs as high as 57% may still qualify — some lenders may choose not to qualify borrowers with a DTI of 43% or more. 💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.
Specific Requirements for Streamline Refinance
For the FHA’s Streamline refinance program, certain specific requirements apply, including:
• The existing mortgage must also be FHA-insured.
• The refinance must result in a “net tangible benefit” to the borrower.
• Only up to $500 may be taken out of the loan in cash.
• In most cases, investment properties are ineligible.
Criteria for Cash-Out Refinance
In order to qualify for an FHA cash-out refinance, you’ll need:
• To have lived in your home for at least 12 months
• To own at least 20% of your home’s equity
• A minimum credit score of 580
• A debt-to-income (DTI) ratio of 43% or lower
Benefits of Refinancing an FHA Loan
What are the specific benefits of refinancing with an FHA loan? Here are just a few of the reasons people choose to take this route when refinancing a mortgage.
Lower Interest Rate and Monthly Payment
For most homeowners, the primary motivator for refinancing is to save money — either over the long term, by scoring a lower interest rate, or on a monthly basis by choosing a loan with a lower minimum monthly payment. In some instances, you may be able to achieve both goals with the same refinancing loan, particularly if your credit history has appreciably improved since you originally took out your mortgage.
New Loan Terms
Some borrowers refinance to give themselves more time to pay off their home loan with a longer term — or to accelerate their repayment process with a shorter term.
Equity Access with a Cash-Out Refinance
For most consumers, a home is the single most valuable asset they’ll ever purchase. Being able to access the value of that equity with a cash-out refinance option is another important motivator for those seeking to refinance, and FHA refinance loans can make that goal a reality whether or not your original loan is FHA-insured.
Avoid Private Mortgage Insurance (PMI)
For borrowers looking to avoid private mortgage insurance (PMI), take heed: Although FHA loans don’t require PMI, they do require mortgage insurance. The FHA-loan version is called MIP (mortgage insurance premium), and is required on all FHA loans.
Improve Financial Stability
For some borrowers, refinancing can improve overall financial stability by achieving any of the goals listed above — for example, freeing up more discretionary income each month with a lower monthly payment.
Steps to Refinance an FHA Loan
Seriously considering an FHA refinance loan? Here are the steps it takes to turn your ideation into reality.
1. Review Your Current FHA Loan
The first step in shopping for a new loan should always be to review your existing mortgage. After all, that’s the best way to understand what factors would make a new mortgage more favorable for your finances. If your original loan is not FHA-insured, note that you may not qualify for certain types of FHA refinancing loans.
2. Shop for Lenders and Offers
Next up: The actual shopping part. In order to ensure you get the best deal available, it’s worth asking several lenders for refinancing quotes, including a full amortization schedule. That way, you’ll understand exactly how much money you stand to save — or not — by choosing a specific lender.
3. Submit an Application and Required Documentation
Once you’ve settled on a lender, you’ll submit your application, including any required documentation (such as ID and income verification, including bank statements and tax forms). In most cases, this process can be done entirely online.
4. Go Through the Appraisal and Underwriting Process
As part of most refinancing processes, you’ll need to have your home appraised so the lender understands its current market value — and can use that value to calculate important aspects of your application, like the LTV. An underwriter will assess your holistic financial profile to determine whether or not you qualify for the refinance loan.
5. Close the Refinance
Finally, if the terms are favorable and you are approved, you’ll close the refinance loan. The new lender will repay your existing loan, and your new payments will be directed toward this new lender, using the new terms you’ve agreed to.
Tips and Considerations for FHA Loan Refinancing
Want to get the very best out of your FHA loan refinancing process? Here are some tips to help you get the most bang for your buck.
Evaluate Your Financial Situation
Refinancing isn’t right for everyone. In fact, in most cases, the FHA won’t even allow you to refinance with one of its loans unless it results in a net financial benefit for you, the borrower. You can take a few first steps to determine whether or not it will help before you ever get a lender involved.
Using a mortgage calculator, you can determine how much a lower interest rate would save you over time or how much a longer loan term would reduce your monthly payment. Keep in mind that refinancing isn’t free, so unless the savings are substantial enough to eclipse your closing costs, it may make more financial sense to keep your original loan.
Understand Closing Costs and Fees
Loans come with a variety of closing costs and fees, such as application fees, the cost of the appraisal, attorney fees, and more. These costs can add up to about 6% of your overall loan value, and though some of them may be able to be financed as part of your loan, they still have the potential to eat into any savings your refinancing loan might offer.
Time Your Refinance Strategically
When it comes to refinancing your mortgage, timing matters. For example, if interest rates are higher than when you took out your original loan, the timing might not be right. The same could be said if you’re planning on moving out of your home in the near future, in which case, you may not have enough time in the home left to break even on your closing costs.
Common Mistakes in FHA Loan Refinancing
Here are some common errors borrowers make when undergoing the FHA loan refinancing process.
Misunderstanding the Eligibility Criteria
Although FHA loans come with more accessible eligibility criteria than many conventional loans, they do still have standards. If your credit score is less than 580 or your payments are delinquent, you’re unlikely to qualify for an FHA refinancing loan.
Ignoring Closing Costs and Fees
As mentioned, closing costs and fees can really add up — so if you don’t take them into account when you’re considering a refinance, you may wind up with an unpleasant case of sticker shock.
Not Considering Long-Term Financial Goals
Refinancing your home, when done best, is all about saving money over time, which means having enough time for those savings to accrue. If you’re planning on selling your house and moving in three to five years, refinancing may actually end up being more expensive than staying with a higher-rate original loan. Additionally, if you’re refinancing primarily to lower your monthly payment and make ends easier to meet, don’t forget to keep your long-term finances in mind. It may not be worth the extra monthly money to pay thousands more in interest overall.
The Takeaway
FHA refinance loans are available for homeowners whose original loans are FHA-insured—as well as for those who have a conventional original mortgage. FHA loan requirements vary depending on which type of loan you’re considering, and may not be right for everyone. But if you can meet the qualifications and derive a solid financial benefit from an FHA refinance, it may be worthwhile to embark on the process.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Can you refinance an FHA loan without an appraisal?
Yes — but only if you qualify for an FHA Streamline loan, which requires your original loan also be an FHA-insured loan.
What happens if your home’s value has decreased?
Even if your home’s value has decreased, you may still be eligible for a refinance loan through the FHA Streamline program. It all depends on how much you owe on your home and your other qualifying factors. (Keep in mind, too, that this program requires that your original home loan also be an FHA one.)
Can you refinance an FHA loan if you’re behind on payments?
No. All FHA loan refinance programs require borrowers to be up-to-date on their loan payments, with most including provisions that there must not have been any payments more than 30 days late within the last six months.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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Mortgage rates down for the most part this week, though current mortgage refinance rates have inched up on a few different terms compared to a week ago. But in spite of some fluctuations, rates are down dramatically from last month.
Average 30-year mortgage rates are continuing to inch down closer to 6%, and they’re currently the lowest they’ve been since spring 2023.
Most experts believe that mortgage rates will continue to go down in 2024 as the economy continues to normalize and the Federal Reserve is able to start lowering the federal funds rate.
The Fed can impact mortgage rates indirectly through changes to the federal funds rate, and the central bank has indicated it will likely start cutting this rate next year. This will take a lot of the upward pressure off of mortgage rates, allowing them to ease. After watching mortgage rates skyrocket over the last couple of years, hopeful homebuyers can finally look forward to improved mortgage affordability in the new year.
Current Mortgage Rates
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Average rate today
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Current Refinance Rates
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Mortgage Calculator
Use our free mortgage calculator to see how today’s mortgage rates would impact your monthly payments. By plugging in different rates and term lengths, you’ll also understand how much you’ll pay over the entire length of your mortgage.
Mortgage Calculator
$1,161 Your estimated monthly payment
Total paid$418,177
Principal paid$275,520
Interest paid$42,657
Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months
Click “More details” for tips on how to save money on your mortgage in the long run.
Mortgage Rates for Buying a Home
30-Year Fixed Mortgage Rates Fall (-0.16%)
The current average 30-year fixed mortgage rate is 6.15%, down 16 basis points since this time last week. This rate is down significantly compared to a month ago, when it was 6.93%.
At 6.15%, you’ll pay $609 monthly toward principal and interest for every $100,000 you borrow.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
20-Year Fixed Mortgage Rates Drop (-0.21%)
The average 20-year fixed mortgage rate is also down a bit from last week, and is sitting at 5.71%. This time last month, the rate was 6.57%.
With a 5.71% rate on a 20-year term, your monthly payment will be $700 toward principal and interest for every $100,000 borrowed.
A 20-year term isn’t as common as a 30-year or 15-year term, but plenty of mortgage lenders still offer this option.
15-Year Fixed Mortgage Rates Inch Down (-0.09%)
The average 15-year mortgage rate is 5.44%, just a few points down from from last week. It’s now much lower compared to this time last month, when it was 6.32%.
With a 5.44% rate on a 15-year term, you’ll pay $814 each month toward principal and interest for every $100,000 borrowed.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
7/1 ARM Rates Creep Up (+0.06%)
The 7/1 adjustable mortgage rate is up six points from a week ago, currently at 6.74%. But it’s down compared to this time last month, when it was at 6.95%.
At 6.74%, your monthly payment would be $648 toward principal and interest for every $100,000 borrowed — but only for the first seven years. After that, your payment would increase or decrease annually depending on the new rate.
5/1 ARM Rates Fall Half a Percentage Point (-0.53%)
The average 5/1 ARM rate is 6.17%, a 53-point drop from last week. It’s also lower than it was a month ago, when it was 7.25%.
Here’s how a 6.17% rate would affect you for the first five years: You’d pay $611 per month toward principal and interest for every $100,000 you borrow.
30-year FHA Rates Essentially Flat (-0.02%)
The average 30-year FHA interest rate is 5.67% today, which is down just two basis points from this time last week. This rate was 6.02% a month ago.
At 5.67%, you would pay $579 monthly toward principal and interest for every $100,000 borrowed.
FHA mortgages are good choices if you don’t qualify for a conforming mortgage. You’ll need a 3.5% down payment and 580 credit score to qualify.
30-year VA Rates Go Down (-0.19%)
The current VA mortgage rate is 5.45%, 19 basis points down from this time last week. This rate was 6.11% a month ago.
With a 5.45% rate, your monthly payment would be $565 toward principal and interest for every $100,000 you borrow.
Mortgage Refinance Rates
30-Year Fixed Refinance Rates Go Up (+0.10%)
The average 30-year refinance rate is 6.33%, just 10 basis points higher than last week. But it’s down quite a bit compared to a month ago, when it was 7.17%.
Here’s how a 6.33% rate would affect your monthly payments: You’d pay $621 toward principal and interest for every $100,000 borrowed.
Refinancing into a 30-year term can land you lower monthly payments, but you’ll ultimately pay more by refinancing into a longer term.
20-Year Fixed Refinance Rates Inch Up (+0.08%)
The current 20-year fixed refinance rate is 5.89%, which is just eight basis points up compared to a week ago. This rate was 6.93% this time last month.
A 5.89% rate on a 20-year term will result in a $710 monthly payment toward principal and interest for every $100,000 you borrow.
15-Year Fixed Refinance Rates Increase (+0.26%)
The average 15-year fixed refinance rate is 6.00%, which is up 26 points compared to last week. This rate is lower compared to this time a month ago, when it was at 6.78%.
A 6.00% rate on a 15-year term means you’ll pay $844 each month toward principal and interest for every $100,000 borrowed.
Refinancing into a 15-year term can save you money in the long run, because you’ll get a lower rate and pay off your mortgage faster than you would with a 30-year term. But it could result in higher monthly payments.
7/1 ARM Refinance Rates Decrease (-0.44%)
The average 7/1 ARM refinance rate is 6.10%, down from where it was last week. A month ago, it was much higher at 7.24%.
Refinancing into a 7/1 ARM with a 6.10% rate means your monthly payment toward principal and interest will be $606 for every $100,000 you borrow. This will be the payment for the first seven years, then your rate will change annually unless you refinance again.
5/1 ARM Refinance Rates Tick Down (-0.27%)
The 5/1 ARM refinance rate is 6.30%, 27 basis points down from last week. It’s also down compared to this time last month, when it was 7.28%.
A 6.30% rate will result in a monthly payment of $619 toward principal and interest for every $100,000 borrowed. You’ll pay this amount for the first five years of your new mortgage.
30-Year FHA Refinance Rates Drop (-0.23%)
The 30-year FHA refinance rate is 5.53%, which down a bit compared to last week. This rate was 6.09% this time last month.
A 5.53% refinance rate would lead to a $570 monthly payment toward the principal and interest per $100,000 borrowed.
30-Year VA Refinance Rates Increase Very Slightly (+0.07%)
The average 30-year VA refinance rate is 5.62%, which is seven basis points higher than it was last week. This rate was 6.50% a month ago.
At 5.62%, your new monthly payment would be $575 toward principal and interest for every $100,000 you borrow.
Are Mortgage Rates Going Down?
Mortgage rates started ticking up from historic lows in the second half of 2021 and increased over three percentage points in 2022. Mortgage rates have risen throughout 2023, and they’re higher than they were in December 2022.
But rates have started trending down in recent weeks, and we should continue to see them fall in 2024 and 2025.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease further. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
An FHA loan is a mortgage insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development. With a minimum 3.5% down payment for borrowers with a credit score of 580 or higher, FHA loans are often a good fit for first-time home buyers or people with little savings or credit challenges.
You could still qualify for an FHA loan even if you don’t meet the requirements for a conventional mortgage or if you had a bankruptcy.
The federal government doesn’t issue FHA loans, but it does insure them. That insurance protects lenders in case of default, which is why FHA lenders are willing to offer favorable terms to borrowers who might not qualify for a conventional home loan.
FHA loans are issued by private, FHA-approved lenders, including many banks, credit unions and nonbanks (a type of lender).
An FHA home loan can be used to buy or refinance numerous types of homes, including:
Specific types of FHA loans can also be used to finance new construction or renovate an existing home. However, all properties — existing or new construction — must undergo an FHA appraisal. If the property meets government standards, then you can use an FHA loan to buy (or refinance) it.
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FHA vs. conventional loans
In general, it’s easier to qualify for an FHA loan than for a conventional loan, which is a mortgage that isn’t insured or guaranteed by the federal government.
Here are some key differences between FHA and conventional loans:
Credit score and history: FHA loans allow for lower credit scores than conventional loans. If you’ve had credit problems (including bankruptcy), you might find it easier to qualify for an FHA loan.
Mortgage insurance: Unlike conventional loans, all FHA loans require mortgage insurance. (However, the amount you pay varies based on the size of your down payment.) With a conventional loan, mortgage insurance generally isn’t required if you make a 20% down payment or once you reach 20% equity in your home.
Gift funds for down payments: FHA rules are more flexible regarding monetary gifts from family, employers or charitable organizations you can apply to your down payment.
FHA appraisal: To qualify for an FHA loan, the property must undergo an appraisal to make sure it meets government standards for health and safety. An FHA appraisal is different and separate from a home inspection. Conventional loans don’t require this.
Closing costs: FHA loans may involve closing costs that aren’t required by conventional loans.
FHA loan requirements
The FHA sets minimum requirements for borrowers seeking an FHA loan. However, each FHA-approved lender can determine its own underwriting standards, so long as those requirements are in line with the minimums set by the FHA. For instance, one lender may require a minimum credit score of 600 and another a minimum of 620.
Lenders each set their own interest rates and fees, too. To make sure you get the best FHA mortgage rate and loan terms, shop more than one FHA-approved lender and compare offers.
In general, here are the basic requirements to expect when applying for an FHA loan.
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Credit score for FHA loans
According to the FHA, the minimum credit score for an FHA loan is 500. If your score falls between 500 and 579, you can qualify for an FHA loan, but you’ll need to make a down payment of at least 10%.
If your credit score is 580 or higher, you can qualify for a down payment as low as 3.5%.
Again, these are FHA guidelines; individual lenders can and often do opt to require a higher minimum credit score.
🤓Nerdy Tip
If your credit score doesn’t measure up, you may want to work on building your credit before you begin home shopping. When you’re ready, find a lender that specializes in FHA loans. These lenders might be more experienced at working with credit-challenged borrowers.
Debt-to-income ratio
Your debt-to-income ratio, or DTI, is a measure of your monthly debt payments in relation to your pretax income. That includes your rent or mortgage costs in addition to things like auto or student loans and credit card balances. In general, lenders view a lower DTI as more favorable when issuing loans.
DTI requirements for FHA loans differ based on your credit score and other compensating factors, such as how much cash you have in the bank. If you have a credit score from 500 to 579, the FHA generally requires a DTI of less than 43%.
It’s still possible to get an FHA loan with a DTI that’s higher than 50%, but you’ll have to meet compensating factors, and your options will be limited.
Down payments and gift funds
The minimum down payment required for an FHA loan is 3.5% if you have a credit score of 580 or higher. If you have a credit score from 500 to 579, you’ll have to put down at least 10% of the purchase price.
The good news? It doesn’t all have to come from savings. You can use gift money for your FHA down payment, so long as the donor provides a letter with their contact information, their relationship to you, the amount of the gift and a statement that no repayment is expected.
🤓Nerdy Tip
Look into state and local down payment assistance programs for first-time home buyers, usually defined as someone who has not owned a home within the past three years. You may be able to find low- or no-interest loans, or even grants, to help you pull together the cash.
FHA appraisal
The property you’re trying to buy with an FHA loan has to undergo an appraisal from an FHA-approved professional and meet FHA minimum property requirements.
The FHA appraisal is separate and different from a home inspection. The goal is to be sure the home is a good investment — in other words, worth what you’re paying for it — and ensure it meets basic safety and livability standards.
For an FHA 203(k) renovation loan, the property may undergo two appraisals: an “as is” appraisal that assesses its current state and an “after improved” appraisal estimating the value once the work is completed.
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Mortgage insurance
FHA mortgage insurance is built into every loan. When you first get an FHA mortgage, you’ll make an upfront mortgage insurance payment, which can be rolled into the total amount of the loan. Then, you make monthly mortgage insurance payments thereafter. The length of your monthly payments varies based on the size of your down payment.
If your down payment is less than 10%: You will pay FHA mortgage insurance for the life of the loan.
If your down payment is 10% or more: You will pay FHA mortgage insurance for 11 years.
With a conventional loan, you can cancel private mortgage insurance once you reach 20% equity in your home. FHA mortgage insurance can’t be canceled in the same way.
🤓Nerdy Tip
Once you have enough home equity, you could choose to refinance your FHA loan into a conventional loan. This would remove the FHA mortgage insurance requirement, but you’d have to meet new qualifications and pay additional closing costs and fees.
Types of FHA loans
The FHA offers a variety of loan options, from standard purchase loans to products designed to meet highly specific needs. A full list of all FHA loan products and eligibility requirements is available at HUD.gov. Here are some common options:
Home purchase: Basic Home Mortgage 203(b)
The Basic Home Mortgage 203(b) is the standard single-family home loan backed by the FHA. Only primary residences — not vacation or second homes — qualify for FHA-insured loans.
FHA refinance loans
You may want to refinance your FHA loan to lower your interest rate, shorten your mortgage term or get cash flow for a costly project, such as a home renovation. Options include:
FHA streamline refinance: This can save you time and paperwork because it doesn’t require a new appraisal.
FHA cash-out refinance: This loan replaces your current mortgage with a new, larger loan. The difference is paid to you in cash.
FHA 203(k) refinance: This loan lets you roll the cost of repairs or renovations into the total amount of your mortgage. Upgrades must meet FHA eligibility requirements.
FHA renovation loans
FHA 203(k) rehabilitation mortgages: This option helps borrowers finance fixer-uppers by rolling purchase and renovation costs into one loan. The standard 203(k) loan lets borrowers finance improvements over $5,000. The FHA limited 203(k) loan lets borrowers finance improvements up to $35,000.
Title 1 Property Improvement Loans: These loans are also available to finance home repairs and improvements. Homeowners can obtain this loan without refinancing their existing mortgage, and the funds can be used to supplement a 203(k) loan. However, you can borrow only up to $25,000 for a single-family home.
Other specialty FHA loans
Energy-efficient mortgages: An energy-efficient mortgage can be used to finance home improvements to help a home save energy. To qualify for this financing, the home must undergo an energy assessment from a qualified professional.
Construction-to-permanent loans: This loan type helps borrowers finance the purchase of a home that’s still being built by paying the contractor in installments. When the home is finished, the loan converts to a permanent mortgage. Qualifying for these types of loans can be more difficult and time-consuming than a traditional purchase mortgage.
Manufactured homes: This includes the type sometimes called a mobile home. Manufactured homes can be bought with FHA financing, so long as everything meets HUD requirements. For example, HUD mandates that a manufactured home is at least 400 square feet, and it must be designed to use as a dwelling attached to a permanent foundation.
FHA loan limits
No matter what type of FHA loan you’re seeking, there will be limits on the mortgage amount. These limits vary by county. FHA loan limits in 2024 range from $498,257 to $1,149,825.
Low-cost county limit: The upper limit for FHA loans on single-family homes in low-cost counties is $498,257. An example is Lucas County, Ohio, where Toledo is located.
High-cost county limit: The upper limit for FHA loans in the highest-cost counties is $1,149,825, which would include mortgages in San Francisco County, California, for example.
Some counties have housing prices that fall somewhere in between, so the FHA loan limits are in the middle, too. An example is Denver County, Colorado, where the 2024 FHA loan limit is $816,500. You can visit HUD’s website to look up the FHA loan limit in any county.
How to apply for an FHA loan
Applying for an FHA loan will require personal and financial documents, including but not limited to:
A valid Social Security number.
Bank statements for, at a minimum, the past 30 days. You’ll also need to provide documentation for deposits made during that time, such as pay stubs.
Your lender may be able to automatically retrieve some required documentation, like credit reports, tax returns and employment records. Special circumstances — such as if you’re a student or you don’t have a credit score — may require additional paperwork.
Pros and cons of FHA loans
An FHA loan might be your best option for homebuying if you have credit challenges. Still, it’s important to understand the trade-offs.
Benefits of FHA loans
Lower minimum credit score requirements than conventional loans.
Down payments as low as 3.5%.
Debt-to-income ratios as high as 50% allowed (in some cases, may be higher if you meet compensating factors).
Disadvantages of FHA loans
FHA mortgage insurance lasts the full term of the loan with a down payment of less than 10%.
Property must undergo a separate appraisal and meet strict health and safety standards, which some sellers will consider an added hurdle.
No jumbo loans: The loan amount cannot exceed the conforming limit for the area.
Though the FHA sets standard requirements, FHA-approved lenders’ requirements may be different.
FHA interest rates and fees also vary by lender, so it’s important to comparison shop. Getting a mortgage preapproval from more than one lender can help you compare the total cost of the loan.
Ways to get the best FHA mortgage rates
When you’re shopping for an FHA loan, it’s smart to make sure your financials are in as good a shape as possible. This means pulling your credit reports from the three main credit reporting agencies — Experian, Equifax and TransUnion — and addressing any errors you might find. If possible, you might also pay down any larger balances, which has the added benefit of improving your debt-to-income ratio. While FHA loans might have more lenient requirements than some other loan types, having a better credit score and DTI will likely net you a better rate.
FHA loans are notable for requiring low down payments, but if you’re able to make one that’s higher than the minimum, you’ll look like a safer candidate to lenders. This is also likely to get you lower rate offers.
Once you feel confident about your application, compare mortgage rates between at least three FHA lenders. Even small differences in the rate you pay could save you — or cost you — thousands of dollars over the term of a home loan. And while you’re comparing lenders, look into first-time home buyer programs offered by your state’s housing authority. Many of these nonprofit agencies offer down payment and closing cost assistance in the form of grants.
Average mortgage rates surged above 8% this fall, but have fallen below 7.5%. The recent dip in rates has caused demand for home loans to increase over the past month.
However, mortgage rates are still higher than they were a year ago and home affordability remains a key barrier for prospective buyers. “The combination of home prices and still-high rates means affordability remains historically low despite improvement from recent peaks,” Matt Graham, of Mortgage News Daily, told CNET.
The average rate for a 30-year fixed mortgage was 7.23% last week, compared to its peak at 8.09% in October, according to CNET’s sister site Bankrate.
Mortgage rates are determined by an array of economic conditions as well as specific factors like your credit score and loan type. They can also vary widely by lender. Because of this, it’s important to compare loan offers from multiple lenders and choose the offer with the best rate and fees for you.
Read more: Mortgage Rates Could Drop Before 2024. But That All Depends on December’s Economic Data
Today’s mortgage interest rate trends
Mortgage rates started to climb in early 2022, as inflation surged and the Federal Reserve stepped in to tame it by hiking its key short-term interest rate, the federal funds rate. Higher interest rates increase the cost of borrowing money for both banks and consumers.
During its Dec. 13-14 meeting, the Fed will decide what to do next with interest rates. The central bank has been in a holding pattern since its last rate hike on July 26, and most financial analysts expect that to continue into 2024. By holding rates steady, the Fed’s goal is to monitor how its string of rate hikes is affecting inflation, as well as the overall economy.
The recent drop in mortgage rates is in part due to signs of falling inflation and messaging from the Fed that the current rate-hike cycle may be nearing its end.
While this marks the first meaningful decline in mortgage rates in months, average purchase rates are still near a two-decade high. Plus, experts don’t expect a sustained downward trend in mortgage rates just yet.
That’s because inflation, while cooling, is still well above the Fed’s annual 2% target. The Fed is likely to keep interest rates at higher levels for longer. In other words, even if the central bank is done hiking rates, it won’t actually start cutting them until next year, according to market watchers.
Current mortgage and refinance rates
What are today’s mortgage rates?
As of Dec. 7, the average 30-year fixed mortgage rate is 7.42% with an APR of 7.44%. The average 15-year fixed mortgage rate is 6.69% with an APR of 6.72%. And the average 5/1 adjustable-rate mortgage is 6.71% with an APR of 7.85%, according to Bankrate’s latest survey of the nation’s largest mortgage lenders.
Current mortgage rates
Product
Interest rate
APR
30-year fixed-rate
7.32%
7.34%
30-year fixed-rate FHA
6.47%
7.37%
30-year fixed-rate VA
6.57%
6.70%
30-year fixed-rate jumbo
7.39%
7.40%
20-year fixed-rate
7.20%
7.22%
15-year fixed-rate
6.74%
6.77%
15-year fixed-rate jumbo
6.78%
6.80%
5/1 ARM
6.67%
7.89%
5/1 ARM jumbo
6.63%
7.79%
7/1 ARM
6.95%
7.97%
7/1 ARM jumbo
6.86%
7.82%
10/1 ARM
7.61%
7.87%
30-year fixed-rate refinance
7.46%
7.48%
30-year fixed-rate FHA refinance
6.52%
7.46%
30-year fixed-rate VA refinance
6.62%
6.82%
30-year fixed-rate jumbo refinance
7.55%
7.57%
20-year fixed-rate refinance
7.25%
7.27%
15-year fixed-rate refinance
6.77%
6.79%
15-year fixed-rate jumbo refinance
6.79%
6.81%
5/1 ARM refinance
6.59%
7.72%
5/1 ARM jumbo refinance
6.71%
7.54%
7/1 ARM refinance
6.90%
7.89%
7/1 ARM jumbo refinance
6.75%
7.78%
10/1 ARM refinance
7.65%
7.87%
Updated on December 12, 2023.
We use information collected by Bankrate, which is owned by the same parent company as CNET, to track daily mortgage rate trends. The above table summarizes the average rates offered by lenders across the country.
What is a mortgage rate?
Your mortgage rate is the percentage of interest a lender charges for providing the loan you need to buy a home. Multiple factors determine the rate you’re offered. Some are specific to you and your financial situation, and others are influenced by macro market conditions, such as inflation, the Fed’s monetary policy and the overall demand for loans.
What factors determine my mortgage rate?
While the broader economy plays a key role in mortgage rates, some key factors under your control affect your rate:
Your credit score: Lenders offer the lowest available rates to borrowers with excellent credit scores of 740 and above. Because lower credit scores are deemed riskier, lenders charge higher interest rates to compensate.
The size of your loan: The size of your loan can impact the interest rate you qualify for.
The loan term: The most common mortgage is a 30-year fixed-rate loan, which spreads your payments over three decades. Shorter loans, such as 15-year mortgages, typically have lower rates but larger monthly payments.
The loan type: The type of mortgage you choose impacts your interest rate. Some loans have a fixed rate for the entire life of the loan. Others have an adjustable rate that have lower rates at the start of the loan but could result in higher payments down the road.
What’s an annual percentage rate for mortgages?
The annual percentage rate, or APR, is usually higher than your loan’s interest rate and represents the true cost of your loan. It includes the interest rate and other costs such as lender fees or prepaid points. So, while you might be tempted with an offer for “interest rates as low as 6.5%,” look at the APR instead to see how much you’re really paying.
Pros and cons of getting a mortgage
Pros
You’ll build equity in the property instead of paying rent with no ownership stake.
You’ll build your credit by making on-time payments.
You’ll be able to deduct the interest on the mortgage on your annual tax bill.
Cons
You’ll take on a sizable chunk of debt.
You’ll pay more than the list price — potentially a lot more over the course of a 30-year loan — due to interest charges.
You’ll have to budget for closing costs to close the mortgage, which add up to tens of thousands of dollars in some states.
How does the APR affect principal and interest?
Most mortgage loans are based on an amortization schedule: You’ll pay the same amount each month for the life of the loan, but the generated interest will be highest at the beginning and will taper as the principal (the amount you borrowed) decreases. Your amortization schedule will show how much of your monthly payment goes to interest and how much pays down the principal. Most borrowers find a fixed, predictable monthly payment more convenient.
Mortgage lenders often publish their rates for different mortgage types, which can help you research and narrow down where you’ll apply for preapproval. But an advertised rate isn’t always the rate you’ll get. When shopping for a new mortgage, it’s important to compare not just mortgage rates but also closing costs and any other fees associated with the loan. Experts recommend shopping around and reaching out to multiple lenders for quotes, and not rushing the process.
FAQs
Most conventional loans require a credit score of 620 or higher, but Federal Housing Administration and other loan types may accommodate borrowers with scores as low as 500, depending on the lender.
Your credit score isn’t the only factor that impacts your mortgage rate. Lenders will also look at your debt-to-income ratio to assess your level of risk based on the other debts you’re paying back such as student loans, car payments and credit cards. Additionally, your loan-to-value ratio plays a key role in your mortgage rate.
A rate lock means your interest rate won’t change between the offer and the time you close on the house. For example, if you lock in a rate at 6.5% today and your lender’s rates climb to 7.25% over the next 30 days, you’ll get the lower rate. A common rate-lock period is 45 days, so you’re still on a tight timeline. Be sure to ask lenders about rate lock windows and the cost to secure your rate.
Mortgage rates are always changing, and it’s impossible to predict the market. However, most experts think mortgage rates will remain elevated in the short term due to the Federal Reserve’s efforts to fight inflation. Fannie Mae predicts the average rate for a 30-year fixed mortgage will end the year at 7.3%.
Our experts answer readers’ home-buying questions and write unbiased product reviews (here’s how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.
Mortgage rates are down across most terms this week. The most popular 30-year mortgage rate has inched down eight basis points from this time last week.
Positive economic data showing that inflation is slowing has pushed mortgage rates down. It’s likely they’ll fall further as inflation continues to come down and the Federal Reserve is able to pull back from its fight against price growth.
All this is good news if you’re hoping to buy a home soon. If you’re waiting for better rates before you start shopping for a home, you may finally find some increased affordability by the time we reach the spring buying season in 2024.
Current Mortgage Rates
Mortgage type
Average rate today
This information has been provided by
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Current Refinance Rates
Mortgage type
Average rate today
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Real Estate on Zillow
Mortgage Calculator
Use our free mortgage calculator to see how today’s mortgage rates would impact your monthly payments. By plugging in different rates and term lengths, you’ll also understand how much you’ll pay over the entire length of your mortgage.
Mortgage Calculator
$1,161 Your estimated monthly payment
Total paid$418,177
Principal paid$275,520
Interest paid$42,657
Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months
Click “More details” for tips on how to save money on your mortgage in the long run.
Mortgage Rates for Buying a Home
30-Year Fixed Mortgage Rates Inch Down (-0.08%)
The current average 30-year fixed mortgage rate is 6.91%, down eight basis points since this time last week. This rate is also down quite a bit compared to a month ago, when it was 7.72%.
At 6.91%, you’ll pay $659 monthly toward principal and interest for every $100,000 you borrow.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
20-Year Fixed Mortgage Rates Decrease (-0.13%)
The average 20-year fixed mortgage rate is down 13 basis points from last week and sits at 6.58%. This time last month, the rate was 7.62%.
With a 6.58% rate on a 20-year term, your monthly payment will be $750 toward principal and interest for every $100,000 borrowed.
A 20-year term isn’t as common as a 30-year or 15-year term, but plenty of mortgage lenders still offer this option.
The average 15-year mortgage rate is 6.29%, down a tiny bit from last week. It’s also down from this time last month, when it was 6.80%.
With a 6.29% rate on a 15-year term, you’ll pay $860 each month toward principal and interest for every $100,000 borrowed.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
7/1 ARM Rates Drop (-0.35%)
The 7/1 adjustable mortgage rate is lower than it was a week ago, currently at 7.04%. It’s down since this time last month as well, when it was at 7.91%.
At 7.04%, your monthly payment would be $668 toward principal and interest for every $100,000 borrowed — but only for the first seven years. After that, your payment would increase or decrease annually depending on the new rate.
5/1 ARM Rates Tick Up (+0.17%)
The average 5/1 ARM rate is 7.20%, a 17-point increase from last week. But it’s a bit lower than it was a month ago, when it was 7.54%.
Here’s how a 7.20% rate would affect you for the first five years: You’d pay $679 per month toward principal and interest for every $100,000 you borrow.
30-year FHA Rates Dip (-0.21%)
The average 30-year FHA interest rate is 6.29% today, which is a bit lower than it was a week ago. This rate was 6.75% a month ago.
At 6.29%, you would pay $618 monthly toward principal and interest for every $100,000 borrowed.
FHA mortgages are good choices if you don’t qualify for a conforming mortgage. You’ll need a 3.5% down payment and 580 credit score to qualify.
30-year VA Rates Go Down a Bit (-0.12%)
The current VA mortgage rate is 6.16%, 25 basis points down from this time last week. This rate was 7.12% a month ago.
With a 6.16% rate, your monthly payment would be $610 toward principal and interest for every $100,000 you borrow.
Mortgage Refinance Rates
30-Year Fixed Refinance Rates Fall (-0.16%)
The average 30-year refinance rate is 7.10%, which is down from last week. It’s also down compared to a month ago, when it was 7.77%.
Here’s how a 7.10% rate would affect your monthly payments: You’d pay $672 toward principal and interest for every $100,000 borrowed.
Refinancing into a 30-year term can land you lower monthly payments, but you’ll ultimately pay more by refinancing into a longer term.
20-Year Fixed Refinance Up a Bit (+0.18%)
The current 20-year fixed refinance rate is 6.89%, which 18 basis points up compared to a week ago. This rate was 7.56% this time last month.
A 6.89% rate on a 20-year term will result in a $769 monthly payment toward principal and interest for every $100,000 you borrow.
15-Year Fixed Refinance Rates Barely Go Down (-0.05%)
The average 15-year fixed refinance rate is 6.62%, which is nearly flat compared to last week. This rate is just a bit lower compared to this time in October, when it was at 6.78%.
A 6.62% rate on a 15-year term means you’ll pay $878 each month toward principal and interest for every $100,000 borrowed.
Refinancing into a 15-year term can save you money in the long run, because you’ll get a lower rate and pay off your mortgage faster than you would with a 30-year term. But it could result in higher monthly payments.
7/1 ARM Refinance Rates Hold Steady (-0.02%)
The average 7/1 ARM refinance rate is 6.96%, right around where it was last week. A month ago, it was higher at 7.73%.
Refinancing into a 7/1 ARM with a 6.96% rate means your monthly payment toward principal and interest will be $663 for every $100,000 you borrow. This will be the payment for the first seven years, then your rate will change annually unless you refinance again.
5/1 ARM Refinance Rates Inch Up (+0.09%)
The 5/1 ARM refinance rate is 7.37%, up just a little bit from last week. It’s been holding relatively steady compared to this time last month, when it was 7.44%.
A 7.37% rate will result in a monthly payment of $690 toward principal and interest for every $100,000 borrowed. You’ll pay this amount for the first five years of your new mortgage.
30-Year FHA Refinance Rates Decrease a Tiny Bit (-0.06%)
The 30-year FHA refinance rate is 6.37%, which is slightly down from last week. This rate was 6.50% this time last month.
A 6.37% refinance rate would lead to a $624 monthly payment toward the principal and interest per $100,000 borrowed.
30-Year VA Refinance Rates Go Down (-0.38%)
The average 30-year VA refinance rate is 6.36%, which is down from last week. This rate was 7.20% a month ago.
At 6.36%, your new monthly payment would be $623 toward principal and interest for every $100,000 you borrow.
Are Mortgage Rates Going Down?
Mortgage rates started ticking up from historic lows in the second half of 2021 and increased over three percentage points in 2022. Mortgage rates have risen throughout 2023, and they’re higher than they were in November 2022.
As inflation starts to come down, mortgage rates will recede somewhat as well. But average 30-year fixed rates will likely remain somewhere in the 7% to 8% range in the near term.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
Refinancing your mortgage can be a smart financial move if you do it the right way. You can tap into your home equity, get a lower interest rate, or even shorten or lengthen the terms of your loan. All of these are great outcomes for you and your wallet.
But here’s something that’s not so great: Picking the wrong mortgage refinance lender.
This one major mistake can potentially cost you tons of money in closing costs, hidden fees, and high interest rates.
You can avoid that by learning just a bit about what to expect throughout the refinance process and how to find the right lender. We’ll walk you through everything you need to know and give you some suggestions for the big decision.
9 Best Mortgage Refinance Lenders of 2023
We’ve compiled a list of the best mortgage refinance companies with the most competitive mortgage rates. Read through our short reviews to understand what kind of mortgage products they offer and how their process works. It’s an excellent resource for narrowing down your list of refinance lenders to consider.
1. loanDepot
loanDepot is a lender that values and earns customer loyalty. This is evident by their refinancing lifetime guarantee. Once you refinance with them the first time, they will waive their lender fees and reimburse your appraisal fee.
It’s also an excellent choice for people who like a person-to-person connection. You can call them at any time to talk directly to a loan officer.
This can be especially helpful for a refinance because there are many reasons for refinancing and many ways to refinance.
After defining your goals, they let you choose from both fixed-rate and adjustable-rate loans. There are other loan types available, such as jumbo and government, or even home equity loans. The minimum credit score is 620.
They are committed to customer satisfaction and back it up with extensive refinance products.
Terms and conditions apply.
Read our full review of loanDepot
2. LendingTree
LendingTree offers a ton of benefits when it comes to refinancing. First, the online process is very easy and can even get you a mortgage rate quote in under three minutes.
LendingTree isn’t a direct lender and instead matches you up with multiple loan offers with mortgage lenders, so you can compare your options.
Here’s why that’s so helpful.
It makes LendingTree’s refinance options much more robust than many other online lenders. For example, you can convert an adjustable-rate mortgage into a fixed rate or refinance your FHA loan or even VA loan.
You can also cash out home equity as part of your refinance or choose from multiple loan terms.
If you’re still in the information-gathering stage of your refinance journey, LendingTree’s website has many valuable resources.
Play around with numbers to check out different scenarios using tools like their refinance calculator and cost estimator.
Read our full review of LendingTree
3. Rocket Mortgage
Another driving force in the online refinance marketplace is Rocket Mortgage, which is part of Quicken Loans.
The application process is straightforward and can be completed entirely online. You can pick your goal for your refinance to help Rocket tailor your loan offers.
You can even link your financials and property information so that you don’t have to gather and upload all the documentation manually. In fact, 98% of financial institutions in the U.S. can be imported for both your bank statements and investment assets.
Rocket Mortgage also allows you not only to browse different options but also customize them. You can choose from a traditional mortgage product, FHA loans, VA loans, USDA loans as well as fixed or adjustable rates. The minimum credit score is 620.
For an exceptional customer service focused experience that’s entirely based online, Rocket Mortgage is certainly worth exploring.
Read our full review of Rocket Mortgage
4. New American Funding
Another direct lender, New American Funding, is a mortgage company that simplifies the online mortgage process. Get started by selecting the type of real estate you want to refinance.
You can choose from:
Single family home
Condo
Townhouse
Multi-unit
Other
You’ll then answer a series of questions about your personal information, including the existing loan amount and your credit scores.
Afterward, you’ll get a quote estimate on the type of refinance loan you could potentially receive. You can also call the 800-number at any time to speak to one of New American Funding’s loan officers.
The average refinance saves their customers about $360 per month. So, they’re definitely worth checking out, especially if your goal is to lower your payment amount.
Read our full review of New American Funding
5. SoFi
SoFi started as a student loan refinance company and has recently branched out to mortgage refinancing as well. One of the key advantages here is that they go beyond the traditional credit score and base your qualification on high-tech algorithms using various criteria.
In addition to the typical refinance and cash-out refinance options, SoFi also offers a refinance product specific to paying off your student loan debt.
As a result, you could end up lowering your monthly mortgage payment on top of getting rid of your student loan payments.
SoFi lets you check your prequalification for a refinance in just two minutes without affecting your credit score. You can usually close on your new loan within 30 days, and you don’t have to pay any lender origination fees.
A final bonus? If you have an existing SoFi loan, you can qualify for an additional 0.125% rate discount on your refinance.
Read our full review of SoFi
6. Guaranteed Rate
This major lender has offices in each state (plus the District of Columbia) but also lets you get started using its Digital Mortgage platform.
Guaranteed Rate requires a minimum credit score of 620 for mortgage approval. However, alternative credit data, such as utility and rent payments, are considered in some cases.
Guaranteed Rate is highly rated for customer service. They consistently receive stellar customer reviews with a satisfaction rate above 95%.
Whether you want a completely online refinance experience or a more personal one, they deliver.
Read our full review of Guaranteed Rate
7. Carrington Mortgage Services
Carrington begins the process by asking you to select one of four goals:
Lowering your interest rate
Lowering your payments or consolidating debt
Remodeling your home
Getting cash out
Fill out a contact form to have them get in touch with you. Alternatively, you can call Carrington anytime between 7:00 a.m. and 6:00 p.m. PST, Monday through Friday.
If you like a lot of personal care and attention throughout the process, you’ll appreciate Carrington. Their mortgage professionals walk with you every step of the way to ensure you have a speedy and successful closing.
Read our full review of Carrington Mortgage Services
8. Bank of America
One of the biggest banks out there, Bank of America puts its resources to good use by creating a comprehensive and easy online user experience.
You can zip through the application from start to finish by uploading all of your supporting documentation and e-signing with a touch of your finger.
Plus, Bank of America practically has a complete offering of refinancing products, including fixed-rate loans, ARMs, jumbo loans, FHA loans, and VA loans. B of A’s interactive website also makes it easy to get a rough estimate of current mortgage interest rates.
All you have to do is type in your zip code and desired loan amount, and you can see where refinance rates start for various mortgage types.
If you already bank with B of A and are a Preferred Rewards member, you may also be eligible for a reduction of your mortgage origination fee anywhere between $200 and $600.
Read our full review of Bank of America
9. Chase
You don’t need to be a bank member to refinance with Chase. And if you prefer to work with a traditional bank over a strictly online lender or matching website, then Chase is a strong choice.
Start the process online by choosing one of two goals: lowering your monthly payment or cashing out your home equity.
From there, you can get started on the prequalification form. Be prepared to enter information on your current mortgage and your finances.
If you ever have a question before or during the application process, you can either call or connect with a home lending advisor in person in one of 28 states.
There are plenty of refinancing options available through Chase, including jumbo, FHA, VA, and HARP loans. As with most other lenders, the minimum credit score is also 620.
Read our full review of Chase
How does refinancing a mortgage work?
Applying for a refinance is very similar to applying for a home loan. It’s also important to note that you don’t have to use your current lender or servicer. You can pick any mortgage lender that you’d like for your refinance.
After shopping around for lenders and comparing your loan options, you’ll have to complete a formal application. This involves submitting your income and financial statements. The loan officer and underwriter will review your materials to make sure you can afford the new terms.
Mortgage Refinance Requirements
Mortgage refinance lenders are primarily concerned with three things: credit score, debt-to-income ratio, and average loan-to-value ratio (LTV).
Credit score: The minimum credit score for most mortgage refinance companies is around 620.
Debt-to-income ratio: Your monthly debt should not exceed 43% of your monthly take-home pay, just like a regular mortgage. In addition to personal loans and credit card debt, they also include your new mortgage payment in that number.
Loan-to-value ratio (LTV): Lenders would like to see a low loan-to-value ratio (LTV). Typically, you should have at least a 20% equity in your home. In addition to personal loans and credit card debt, they also include your new mortgage payment in that number.
You’ll be required to get an appraisal of your home as part of the process. This makes sure the property lives up to its estimated value and helps determine your total equity in the home. You don’t need to do anything special before the appraiser arrives. However, it is wise to clean and tidy up to make a favorable impression.
Thereafter, you just have to wait for closing. Usually, your lender lets you pick the date, time, and location. Next, they’ll send a notary who will walk you through signing the closing documents. Then, you’ll start fresh with your new payment schedule. If you’ve cashed out some of your home equity, you can typically receive a check or have it deposited directly into your bank account.
How to Choose a Lender to Refinance Your Mortgage
When you decide to refinance, picking the right lender is vital to your financial success.
Mortgage refinance lenders structure loans differently, depending on whether you want to minimize closing costs or lower monthly payments—or a combination of the two.
The first thing to look at is what kind of refinance loans the lender offers. For example, you can find FHA refinance loans with lower minimum credit score requirements than conventional loans if you’re looking for a government-backed refinance.
Loan Terms
Alternatively, you may want to refinance into a shorter term than the standard 30-year fixed mortgage. Look for mortgage refinance companies that offer multiple options, such as 10, 15, or 20-year mortgages. Then, you can compare refinance rates and payments and pick the best one.
As with any kind of loan, you also want to shop around for mortgage rates. Not every lender automatically offers the same interest rate or APR. You’ll also want to compare closing costs as part of the evaluation process. You need to know both your upfront costs and long-term costs in terms of interest.
Closing Costs
If you want to minimize the amount of cash you bring to the table, ask whether your closing costs can be rolled into the loan.
There are numerous ways you can tackle mortgage refinancing. That’s why picking the right refinance lender can make a huge difference. They can help you understand the pros and cons of different options, so you can make the right choice.
Don’t be afraid to ask questions. Ask for specific numbers, and talk to a few different lenders to get an idea of their recommendations and refinance process.
When to Refinance a Mortgage
Now that you’ve learned of the best refinance lenders out there, make sure you’re refinancing for the right reasons. Here are some of the most common reasons for refinancing a mortgage.
Lower Your Monthly Payments
It’s entirely possible to refinance to lower your payment amount. To save money over the life of your loan, you could refinance into a lower interest rate if mortgage rates have dropped since you got your loan. Or, if your credit score has improved, you might be able to qualify for a lower refinance rate as well.
If you’re having trouble making your payments, you could also consider refinancing into a longer loan term. This spreads out your existing mortgage amount over more years.
For example, if you’ve been paying your mortgage for 10 years on a 30-year loan, you could extend the existing 20 years over another 30 years. However, you should proceed with caution, depending on your financial situation and retirement plans.
Cash Out Your Home Equity
If you have equity in your home—at least 20%—you could potentially qualify for a cash-out refinance. This allows you to get a lump sum of money and then add that amount to your existing loan. Usually, you can borrow up to 80% of your equity.
Let’s take a look at an example.
Say your home is valued at $200,000, and your mortgage is down to $150,000. That leaves you with $50,000 in equity. The bank will let you borrow up to 80% of that, which is $40,000.
If you qualify for the mortgage, you could then refinance a total of $190,000. You can then use the cash for home renovations, college tuition, medical bills, high-interest debt, or anything else.
Change the Terms
Shorter loan terms typically come with lower mortgage rates since there’s less of a chance for you to default on the loan. Once you’ve paid off a portion of your current 30-year mortgage, you may be able to save on interest by switching to a 15-year mortgage.
If, for example, you’re 15 years into a 30-year fixed mortgage, you only have 15 years left to pay. So, you could potentially save thousands by getting a lower interest rate via an actual 15-year fixed mortgage.
Switch to a Fixed Rate Mortgage
If you initially took out an adjustable-rate mortgage (or ARM) and your fixed period is ending, you should consider refinancing your loan. There’s a cap on how high your adjustable mortgage can go. It could potentially be much higher than current fixed interest rates.
Talk to a lender to see the best option to avoid a significant jump in your monthly payment. And be sure to plan ahead since it can take time for the approval process to finish.
See also: How to Refinance Your Mortgage
When Not to Refinance
When shouldn’t you refinance? If your credit score has dropped significantly since you took out your original mortgage, you may be surprised by higher interest rates. Similarly, refinancing today may not save you money if you qualified for a rock-bottom rate during the recession.
Furthermore, consider that every mortgage refinance comes with closing costs, just like your initial home loan. Therefore, you need to make sure any financial benefits you expect to receive from your refinance outweigh the added closing costs.
All of these considerations can be discussed with a suitable lender, whether in person, on the phone, or online. Do the research it takes to make sure you’re making an intelligent decision on your next home refinance.
Frequently Asked Questions
What are the steps to refinancing a mortgage?
The process of refinancing a mortgage typically includes the following steps:
Determine if refinancing makes sense for your financial situation and goals.
Research and compare different mortgage lenders.
Choose the right lender and loan product for your needs.
Complete a formal application, providing all necessary income and financial documents.
Wait for the lender’s underwriting process, which includes verifying your information and appraising the home.
Once approved, arrange for a closing where you will sign all required documents.
Begin your new payment schedule, or receive your funds if you’ve done a cash-out refinance.
How does refinancing a mortgage affect my credit score?
Refinancing a mortgage can temporarily lower your credit score, as the lender will perform a hard credit check during the application process. This is typically a small drop and should recover over time as long as you continue to make regular, on-time payments. Additionally, the old mortgage will be marked as paid off on your credit report, which can be beneficial to your credit history in the long run.
What are some reasons I might not qualify for a mortgage refinance?
If your credit score has significantly dropped since you took out your original mortgage, you may not qualify for a favorable interest rate, making refinancing less beneficial. Additionally, if your debt-to-income ratio is too high, you may not qualify. Lastly, if you do not have sufficient equity in your home (usually at least 20%), you may not qualify for certain types of refinancing.
Can I refinance my mortgage with bad credit?
While it may be more difficult to refinance your mortgage with bad credit, it’s not impossible. Some lenders specialize in loans for individuals with poor credit, and government programs like the FHA refinance loans may have lower credit score requirements. However, be aware that you will likely be offered higher interest rates.
How much does it cost to refinance a mortgage?
The cost of refinancing a mortgage typically includes an origination fee, an application fee, an appraisal fee, and closing costs, among other potential costs. This can usually amount to between 2% and 6% of the loan amount. However, in some cases, you may be able to roll these costs into your loan to reduce your out-of-pocket expenses at closing.
Can I refinance my mortgage more than once?
Yes, you can refinance your mortgage more than once. However, it’s important to consider the costs of refinancing, such as closing costs and possible prepayment penalties, and weigh them against the benefits you expect to receive. You’ll want to make sure that refinancing makes financial sense each time.
What’s the difference between a cash-out refinance and a rate-and-term refinance?
In a cash-out refinance, you take out a new mortgage for more than what you currently owe, and then receive the difference in cash. This can be useful if you need to cover large expenses or consolidate higher-interest debt.
A rate-and-term refinance, on the other hand, changes the interest rate, the term length, or both of your existing mortgage, but you don’t receive any cash. This is typically done to lower monthly payments or to pay off the loan faster.
When should I consider a fixed-rate mortgage over an adjustable-rate mortgage?
A fixed-rate mortgage may be a better option if you plan to stay in your home for a long period of time and want predictable, stable monthly payments. On the other hand, an adjustable-rate mortgage (ARM) may initially offer a lower interest rate, but it can fluctuate over time. An ARM could be a suitable option if you plan to sell or refinance your home before the interest rate starts adjusting.