What is the FHA Streamline Refinance?

The FHA Streamline Refinance is a newly improved loan for homeowners who have existing FHA loans in good standing. It is currently the fastest and simplest way to refinance an FHA-backed home mortgage.

What are the benefits?

Well, two things. First, by not requiring an appraisal, the government is allowing you to use the original purchase price of the home. You can now refinance even if you owe more than the property is worth! For underwater homeowners that have not been able to refinance, this is a huge benefit.

Secondly, the costs of Mortgage Insurance (MI) have been greatly reduced in some cases. The upfront amount on a 30-year mortgage has gone from 1.75% to 0.01% and the monthly fee is reduced to .55% from 1.35% as long as the loan was endorsed by FHA prior to June of 2009. This is important, as many homeowners who tried to refinance in the recent past have found that the increased MI they had to pay (which was often much higher than when they originally took out the loan) negated much of the benefits of refinancing into a lower interest rate.

If your loan was endorsed after June 2009, the savings on the MI will not be as significant, but you still may see a reduction in the monthly payment due to interest rate changes.

Update – for loans with case number assignments from FHA after June 23, 2013, the MI was not able to be canceled at a loan-to-value below 80% on 30 years mortgages with a down payment of less than 10% like it was previously. For those borrowers with an initial loan-to-value of less than 90%, the MI was required for only 11 years as opposed to the life of the loan.

Starting January 26, 2015, FHA will decrease the monthly MI premium on 30-year mortgages to just .85%. This drop of .5% will reduce the previous monthly premium by about 35%, or about $62 a month or nearly $750 a year on a $150,000 loan. This may appeal to you if you can take advantage of a lower interest rate, a lower monthly payment, or both.

How hard is it to qualify?

While most lenders have a few requirements of their own, in general, FHA’s official guidelines allow you to refinance:

• Without verifying employment
• Without verifying income
• Without looking at your credit scores
• Without needing an appraisal

In reality, we are seeing lenders that are asking for a good recent history of on-time mortgage payments and minimum credit scores. While there are some exceptions, if you have been making the payments on your mortgage, even if you are unemployed and have a few glitches on your credit report, and owe more than your house is worth, you should be OK. The line of thought is that if you have been making your home loan payments on time in the recent past, why would you not continue if you could save hundreds of dollars each month.

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What hoops do I have to jump through to get an FHA Streamline Refinance?

Because FHA doesn’t make the loans, it only insures them, there are some minimum standards that you must meet. These include:

• A 12-month history with NO late mortgage payments all the way up to the day of closing.
• The refinance must have a purpose. Therefore, you must see a minimum of 5% reduction in the monthly payment of your previous loan; or you must be refinancing into a fixed rate loan from an adjustable rate loan. The purpose cannot be to cash out equity.
• Unlike other refinances, the loan amount cannot be increased to include the closing costs.
• To get the much lower MI premiums, the previous purchase or refinance must have been endorsed by FHA on or before May 31, 2009.

While the savings seen by the borrower requirement should not be an issue because of lower rates and MI costs, the other two above could be. If you have had a late payment in the last 12 months, the best thing to do is to get caught up (if you are not already) and we can refinance you when you have 12 on-time payments in a row!

As far as the closing costs are concerned, the lender’s fees, title charges, and funds to start the escrow will have to be paid at closing. While you should get a refund of any funds held in escrow by the previous lender, it usually comes about 30-45 days after the closing. Often times, we can help you skip a payment and use those funds for closing costs, and/or we may be able to work out a credit from the lender to help pay for the closing costs.

It is important to know that the FHA endorsement date and the closing date of the loan are not the same things. If your previous loan was closed anytime before May 31, 2009, we can look up the actual endorsement date to make sure you qualify for the reduced MI refinance. DO NOT allow anyone to tell you that you qualify without first knowing the correct date of endorsement.

What do I do next?

The BEST thing to do is contact me to see what program you will qualify for if you meet the guidelines.

My goal is to help you refinance your home in the easiest and fastest way possible while seeing the biggest reduction in payment available.

Since mortgage rates are at their lowest levels in history, we don’t expect them to move in any direction except up.

Take a few minutes to see what your options are. If you have questions, comments, or concerns, you can contact me by:

• Clicking here to Apply Online
• Calling me at 219-695-0369
• Emailing me at scott@nwiloanguy.com