As recently announced, the FHA will be reducing their annual mortgage insurance premium from a factor of 1.35 to .85. This translates to $500 per year in savings for every 100K borrowed.
This reduction combines with today's low fixed rates can result in some significant savings for current FHA borrowers. How to take advantage of the FHA mortgage insurance premium reduction is what we will discuss today.
I currently have an FHA mortgage, will my mortgage insurance premium be automatically reduced?
Nope. If you currently have an FHA mortgage your mortgage insurance premium will not be automatically reduced. You have to apply for this new reduced mortgage insurance premium either with a regular FHA refinance or with an FHA streamline refinance.
What is the difference between a regular FHA refinance and a FHA streamline refinance?
The regular FHA refinance involves verifying the value of the home with an appraisal, verifying income, and an in-depth analysis of the credit history and the credit score. The FHA streamline refinance does not require an appraisal of the home, does not require any income verification, and the credit report history is limited to just verifying that the mortgage has been paid on time. Other credit does not factor in to the approval of an FHA streamline refinance. This means that borrowers can qualify for the FHA Streamline Refinance program even if they have late payments on car loans or credit cards, etc or even if they are the midst of a bankruptcy.
The FHA does not allow closing cost to be rolled into the new mortgage balance with the FHA streamline refinance program. With this program the new loan amount is very close to the current balance and payoff amount. This results in the borrower not having a substantial increase in the amount owed on the house. Rather than have the borrower bring money to closing, FHA streamline refinances are generally structured with the lender issuing a credit to cover any and all closing costs. This credit is usually achieved by the letter adding around .25 or more to the interest rate, thereby absorbing the closing costs into the interest rate rather than having the borrower pay these costs out of pocket.
Since the FHA streamline refinance lowers the monthly payment without the need for an increase to the loan balance, these savings are often worth pursuing even if the drop in payment is not dramatic. The FHA requires that there be at least a 5% payment reduction from the current payment to the new payment.
The regular FHA refinance will most likely increase the current mortgage balance so the monthly savings must be weighed against the downside of adding money to the loan balance. Deciding which of the FHA refinance programs is best for you will depend on a few factors including: your credit score; the value of your home; current income situation and how long you plan on living in the home.
Regular FHA Refinance
- lowest interest rate
- income verified
- credit history verified
- appraisal required
- closing costs rolled into the loan
FHA Streamline Refinance
- no income verified
- no credit report or credit score required
- no appraisal required
- closing costs paid by lender
- increase to current loan balance is limited
For those who currently have an FHA Mortgage in Pennsylvania and would like to review their options for lowering their Mortgage Insurance Premium can reach me for a consultation.
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