Government helps homeowners refinance
By Marcie Geffner • Bankrate.com

If you're looking for a way to refinance your mortgage, you might want to consider a loan that's backed by the Federal Housing Administration or, if you're a U.S. military veteran, the U.S. Department of Veterans Affairs. Loans backed by these two federal government agencies are especially attractive today because the loan amount limits have been raised, and some loan programs are open to homeowners who have little to no equity or imperfect credit.

Given those benefits, it's no surprise that government-backed loans have accounted for a much larger share of total loan applications. In the second half of last year, government-backed loans accounted for as much as 30 percent of the total loan applications submitted to lenders, according to the Mortgage Bankers Association in Washington, D.C., which has tracked that figure since January 1990. Compare that one-third share to the lowest share of government-backed loans on record -- 5.8 percent in August 2005 -- and it's clear that homebuyers and homeowners have taken a renewed interest in these loans.

Yet not all lenders and mortgage brokers are able to offer Federal Housing Administration or Veterans Affairs loans, also known as FHA and VA loans, according to Greg Gwizdz, national sales manager at Wells Fargo Home Mortgage in Des Moines, Iowa. That means if you believe this type of loan might be appropriate for you, you should be sure to ask upfront whether your lender or broker offers these types of loans.

"If the lender you choose doesn't offer FHA, you might not be getting the right loan," Gwizdz warns.

FHA allows more leeway
Homeowners have flocked to FHA-insured loans for a few reasons in particular.

The catch is that all FHA-insured loans require mortgage insurance for at least five years. Mortgage insurance protects the lender if the borrower defaults on the loan. It is paid for by the homeowner in the form of an upfront fee and monthly premiums that are added to the mortgage payment. The FHA usually allows the upfront fee to be financed as part of the loan amount, but either way, mortgage insurance still adds to the cost of an FHA-insured loan.

Whether a borrower would be better off with an FHA-insured loan or a conventional mortgage depends in part on the loan-to-value ratio, or LTV ratio, according to Don Frommeyer, senior vice president at AmTrust Mortgage in Carmel, Ind.