An FHA-insured loan is a conventional mortgage loan through an FHA-approved lender guaranteed by the Federal Housing Administration. The loan itself is no different from any other consumer financing; the most notable difference is the process for securing the loan. Nonetheless, homeowners who previously secured their mortgage loans through the FHA may later decide to convert their loan to a “regular” home loan.
To convert an FHA loan to a conventional home loan, you will need to refinance your current mortgage. The FHA must approve the refinance, even though you are moving to a non-FHA-insured lender. The process is remarkably similar to a traditional refinance, although there are some additional considerations.
Locate and research qualified mortgage lenders in your area. If you are content with your current lender and current on your mortgage, this is a good place to start. Also consider your local bank branch or credit union, as you are likely to secure better terms as an established customer. Consider larger, nationwide lenders over smaller, locale-specific institutions, as the former are often in a better position to offer more competitive rates than the latter. Compile a list of your top three or four lenders for further consideration.
Contact the list of lenders you compiled; schedule an interview with a mortgage consultant at each branch, if possible. When you attend, bring along a list of your current income, assets and liabilities; you do not need to bring any documents to substantiate your income at this time. Request a quote from each lender, but do not provide your sensitive information at this time. Do not allow any lender to pull your credit report until you choose the lender with which you want to refinance.
Complete a formal application with the lender you choose, and provide copies of your last two pay stubs, most recent income tax return, statements of your personal assets (including savings accounts, stocks or other investments), a list of your recurring monthly liabilities (including utility bills and insurance premiums), a list of your current outstanding debts and corresponding creditors and the title to your home. You may also need to provide photographic identification and your Social Security card to substantiate your identity.
Consult an independent home appraiser to conduct an appraisal of your home. The lender may require you to choose from a list of approved appraisers, but the appraisal will be at your expense. Provide the lender with a copy of the appraiser’s final report as soon as possible.
Attend your closing. This is very similar to the closing you attend when you first purchased your home. If you opted for a “no closing cost” refinance, you will not incur any additional fees at closing (although you will recognize these fees at the end of your repayment term). Otherwise, be prepared to cover the closing costs in cash at this time. Check and re-check the terms of your refinanced mortgage–the interest type and rate, specifically–before you sign the bottom line. The lender can change the interest terms at any time prior to closing, and some lenders will increase the interest rate without notifying you. Once you sign, you are locked in at the rate presented on the agreement unless and until you refinance again.
Pay off your FHA-insured loan as soon as your new lender disperses the funds. Your new lender will not, by default, apply the balance of your refinanced loan to your original mortgage. You will need to do this yourself, directly to your original lender.