The Complete FHA Streamline Refinance Guidelines

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Mortgage and Lending

The FHA Mortgage Insurance Premium (MIP) Refund chart

This FHA Streamline information is accurate as of today, February 21, 2011. Mortgage guidelines change all the time. If you get your FHA information somewhere else, double-check the article's publish date first.

The FHA Streamline Refinance Returns To Its Roots

The FHA-insured mortgage market share has increased nearly 10-fold since 2006, creating a huge class of first-time FHA borrowers around the country.

FHA mortgages are identical to conventional mortgages in most ways -- they're offered as fixed rate or adjustable,they're available with 15- or 30-year terms, and they don't have a prepayment penalty.

But, because FHA mortgages are insured by the U.S. government, FHA homeowners get access to a special, FHA-only program known as the FHA Streamline Refinance.

Now, the FHA Streamline Refi program underwent a ton of changes between 2008 and early-2011, but in a HUD statement made mid-February 2011, the government announced that the FHA Streamline is returning to its roots.

The FHA Streamline is, once again -- for lack of a better word -- streamlined. No income, no job, no credit, no problem!

For the FHA, it's much saner than you think.

Summarizing the FHA Streamline Refinance Changes

There's a host of changes in the FHA Streamline Refinance program and the information that follows is a key summary of those changes. I've added additional reminders, too, that will be helpful to new and experienced FHA households alike.

Now, first, please note that some of these guidelines run contrary to "common sense". For example, you can refinance using the FHA Streamline program if you're unemployed, jobless, or otherwise out-of-work.

That shocks a lot of people. But, it shouldn't.

The key idea here is that FHA is insuring these mortgages before and after the Streamline Refinance. Therefore, in the FHA's best interest to get every eligible household's payment down as low as it can possibly go.

Whether a person is without income doesn't matter -- that "old" mortgage payment is still going to be due. So, if the "new" payment if smaller and reduces the chance of homeowner default, the homeowner wins and so does the FHA. But mostly, the FHA wins.

The FHA wants its loans to default as infrequently as possible.

Perfect, 12-Month Payment History Is Required

The FHA's main goal is to reduce its overall loan pool risk. Therefore, it's number one qualification standard is that homeowners using the Streamline Refinance program must have a perfect payment history stretching back 12 months. 30-day, 60-day, and 90-day lates are not allowed. Furthermore, the loan must be current at the time of closing.

210-Day "Waiting Period" Between Refinances

The FHA requires that borrowers make 6 mortgage payments on their current FHA-insured loan, and that 210 days pass from the most recent closing date, in order to be eligible for a Streamline Refi.

Employment And Income Are Not Verified

The FHA does not verify a borrower's employment or annual income as part of the FHA Streamline process. There is no Verification of Employment, nor are paystubs, W-2s or tax returns required for approval. You can be unemployed and get approved for a FHA Streamline Refinance so long as you still meet the other program requirements.

Credit Scores Are Not Verified

The FHA does not verify credit scores as part of the FHA Streamline Refinance program. Instead, it uses payment history as a gauge for future loan performance. This means that credit scores of below 620, below 580, and below 500 are eligible for Streamline Refis. However, most homeowners with low credit scores have missed one or more mortgage payments in recent months which, in turn, renders them ineligible for the program.

The Refinance Must Have "Purpose"

Streamline Refinance applicants must demonstrate that there's a Net Tangible Benefit in the refinance; a legitimate reason for refinancing the home. Loosely, this is defined as reducing the (principal + interest + mortgage insurance) component of the mortgage payment by 5 percent or more.  Refinancing from an ARM into a fixed rate loan is also consider to be a Net Tangible Benefit. Taking cash out to pay bills is not an allowable Net Tangible Benefit.

Loan Balances May Not Increase To Cover Loan Costs

The FHA prohibits increasing a Streamline Refinance's loan balance to cover associated loan charges. The new loan balance is limited by the math formula of (Current Principal Balance + Upfront Mortgage Insurance Premium). All other costs -- origination charges, title charges, escrow population -- must be paid by the borrower as cash at closing. Or, the loan officer can credit these costs in full at closing. To get a zero-cost FHA Streamline Refi,

Appraisals Not Required

The FHA isn't concerned about home value -- it's insuring your loan regardless. Therefore, the FHA does not require appraisals for its Streamline Refinance program. Instead, it uses the original purchase price of your home, or the most recent appraised value, as its valuation point. Homes that are underwater are still FHA Streamline-eligible.

Streamlines Still Require FHA Mortgage Insurance

All FHA borrowers make two types of mortgage insurance payments -- upfront, and annual.

Upfront mortgage insurance is paid at closing and is equal to 1 percent of the loan size. For example, a $100,000 FHA loan would require a $1,000 upfront mortgage insurance premium (MIP) paid at closing. The FHA adds this insurance payment to your new, starting loan balance by the FHA as part of the Streamline Refi program.

The good news about Upfront MIP it's refundable.

If you refinance your FHA mortgage during its first 36 months, a portion of that original Upfront MIP payment gets credited to your next Upfront MIP payment. The refund chart is at top.Refinancing at Month 11 grants a 60% refund.

Waiting until Month 12 reduces that refund to 58%. Therefore, it behooves homeowners with FHA mortgages to refinance sooner rather than later when mortgage rates are favorable.

The sooner you refi, the bigger your refund.

The other type of FHA mortgage insurance -- annual MIP -- is ongoing mortgage insurance built-in to the monthly mortgage payment. It's a mandatory payment for all homeowners, regardless whether a homeowner has 20% equity. After 60 months, though, annual mortgage insurance is no longer mandatory. The FHA stops charging it.

As part of another FHA change, starting April 18, 2011, the cost of Annual MIP is increasing. The current  chart is below:

  • 15-year loan terms, over 90% loan-to-value : 0.25% MIP (0.50 starting April 18 2011)
  • 15-year loan terms, under 90% loan-to-value : 0.00% MIP (0.25 starting April 18 2011)
  • 30-year loan terms, over 95% loan-to-value : 0.90% MIP (1.15 starting April 18 2011)
  • 30-year loan terms, under 95% loan-to-value : 0.85% MIP (1.10 starting April 18 2011)

Therefore, if you're thinking about an FHA Streamline Refinance, not only will monthly payments rise if you wait until April, but it will be harder to meet the FHA's Net Tangible Benefit requirement of saving 5 percent on your payment per month.

As always, I am available in the office to answer any questions you may have.

Christina Livingston, ACOPIA Home Loans, Franklin, TN

(615) 656-2821 office     (615) 586-3178 cell    clivingston@acopiahomeloans.com

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