Refinancing with an FHA mortgage can do more than save you money today. An FHA mortgage refinance can even help you get a better price when you sell your home. Here's how.

Top Refinancing Tips: The Secret FHA Advantage

Most people know about some of the advantages that only come with FHA mortgages--more liberal underwriting guidelines, the ability to refinance up to 96.5% of your home's value (very useful in areas with declining home values and little home equity), the absence of Fannie and Freddie risk-based pricing adjustments, the ability to wrap home improvements into a refinance even with minimal equity. But there's one FHA advantage that could eclipse all of these and put even more money in your pocket in the future: FHA mortgages are assumable.

FHA Mortgages Are Assumable... So What?

It's true that assuming an FHA mortgage is not what it used to be. The new borrower does have to qualify for the mortgage in order to assume it. However, FHA's leadership has affirmed that the agency will not be tightening up its underwriting standards anytime soon, so most prospective home buyers should be able to qualify to assume your mortgage. After the lender has deemed your buyer creditworthy and your property is transferred, you'll be released from liability for the loan balance.

What's an Assumable Mortgage Worth?

The benefit of the assumable mortgage depends on what interest rate you can get now, and how much rates increase by the time you put your property on the market. For example, let's assume:

• You refinance your $300,000 mortgage today and secure a 5% interest rate, with a principal and interest payment of $1,610.
• Three years from now, mortgage interest rates have risen to 7% (a scenario that many analysts consider realistic). You put your home on the market after making 36 monthly payments, when you owe $286,031.
• Your neighbor is selling a very comparable home without assumable FHA financing for $340,000.

With an assumable FHA mortgage, your home is worth more. Use a mortgage amortization calculator to see just how much more. Anyone who buys your neighbor's home for $340,000 with a new FHA loan would have to put down 3.5%, or $11,900, pay closing costs of 2% to 3% (a minimum of $6,562), and take on a rate of 7%. For the prospective buyer of your neighbor's home, the loan amount is $335,482 ($328,100 plus FHA's 2.25% upfront mortgage insurance premium, which can be rolled into the loan balance) and the monthly principal and interest payment is $2,232. Total money paid for the home, including $803,509 in principal and interest plus closing costs: $810,071.

Their alternative is to buy your comparable home with an assumable FHA mortgage. Let's say you list your home at a higher price of $350,000. The buyer would pay minimal lender fees (fees upon assumption can't exceed actual lender costs), take over your loan of $286,031 with its payment of $1,610, put the same $11,900 down (it goes to you, not the lender), and get a second mortgage from you for the remaining $52,069 at 10%. The monthly principal and interest payment on that second loan is $457, for a total principal and interest payment of $2,067. The total paid over the life of both loans would be:

• $521,791 in principal and interest on the assumed FHA loan;
• minimal lender fees--let's assume 1.5%, or $4,290; plus
• $164,499 in principal and interest on the second mortgage.

That comes out to $690,581, or about $119,000 less over 30 years--even though your selling price is higher.

You sell your home for $10,000 more and get a 10% rate of return on your second mortgage. Your buyer saves a bundle, and you'll probably sell your house months before your neighbors can sell theirs. All because you refinanced with FHA.

How to Save Even More

The value of your FHA refinance depends on what interest rates are when you sell your home (which you have no control over), but also on what refinance mortgage rates you can get now. So the better your rate today, the more your mortgage is worth tomorrow. Shopping for your FHA refinance online is a free and easy way to compare a lot of interest rate quotes and make sure that you get the best deal available. It can really pay off when you sell.