FHA Streamline Refinance Loans
FHA streamlined loans emerged onto the mortgage scene in the early 1980's. Since then, thousands of FHA home owners have utilized this program to lower their interest rate with fewer costs and relative ease.
A FHA streamlined refinance loan refers only to the amount of documentation and underwriting that is conducted on a loan file by the mortgage company. Mortgage companies may offer streamlines "no cost" (actually no out-of-pocket expenses to the borrower) by charging a higher interest rate on the new loan. Other companies may offer a streamline refinance that wrap the costs into the new mortgage amount. Unfortunately, there must be sufficient equity in the property. Before deciding which option best fits your needs, it is important to weigh not only the costs but also the long term impact that a higher rate or a higher mortgage payment will have.
FHA streamline refinance loans with or without and appraisal, do not require credit underwriting. While HUD does not disqualify a borrower for prior late mortgage payments, individual lender may have restrictions. New individuals may be added to title on a streamline refinance without credit review. Deleting individuals from title on a streamline refinance may require qualification (certain exceptions may apply).
The following are basic requirements of an FHA streamlined refinance:
Borrowers who refinance their delinquent non-FHA ARM loan into FHASecure and subsequently wish to refinance to another FHA-insured mortgage must use a refinance product that requires full qualifying, e.g., a rate and term refinance. Once the FHA-to-FHA full qualifying refinance is insured, these borrowers will be able to take advantage of FHA’s Streamline Refinance program.
The mortgage to be refinanced must already be FHA insured
The mortgage to be refinanced should be current (not delinquent)
The refinance must lower the principal and interest payment of the previous mortgage payment
The borrower may not receive cash from loan proceeds in excess of 500 dollars.
Any subordinate financing may remain in place as long as it is subordinated on title.
The term of the new mortgage must be the lesser of 30 years or the unexpired term of the mortgage plus 12 years. A borrower cannot refinance from a 15 year loan to a 30 year loan.
An appraisal is not required unless the closing costs are wrapped into the loan. Streamline refinances without an appraisal are limited to the unpaid principal balance, minus any refund credit of the mortgage insurance premium (MIP), plus the new upfront MIP if it is to be financed in the mortgage.
No termite report is required
The borrower cannot be late, delinquent, or in default of any federal debt.
FHA Refinancing Loan
FHA Refinance loans are used to refinance any non FHA loan to an FHA loan. If a borrower has conventional mortgage they may be able to use the FHA refinance loan to refinance up to a LTV of 97.75% provide that they are not getting any money at closing or paying off anything other the the existing mortgage(s).
Existing Debt: Add together the amount of the existing first lien, any purchase money second mortgage, any junior liens over 12 months old, closing costs, prepaid expenses, borrower paid repairs required by the appraisal, discount points, and then subtract any refund of UFMIP.
If any portion of the funds of an equity line of credit in excess of $1000 was advanced within the past 12 months and was for purposes other than repairs and rehabilitation of the property, the line of credit is not eligible for inclusion in the new mortgage.
The amount of the existing first mortgage may include the interest charged by the servicing lender when the payoff will not likely be received on the first day of the month (as is typically assessed on FHA-insured mortgages). The amount also may include any prepayment penalties assessed on a conventional mortgage.
In determining the existing debt as part of the mortgage amount calculation, the mortgagee may include accrued late charges and escrow shortages.
Prepaid expenses may include the per diem interest to the end of the month on the new loan, hazard insurance premium deposits, monthly mortgage insurance premiums, and any real estate tax deposits needed to establish the escrow account regardless whether the mortgagee refinancing the existing loan is also the servicing lender for that mortgage.
Cash-out FHA refinance loans on properties owned more than one year prior to the FHA refinance are permitted on owner occupied principal residences only, and are limited to 85% of the appraised value up to a base loan amount of $417,000. If the base loan amount (loan amount prior to adding the MIP premium) is greater than $417,000, then the maximum loan to value is limited to 85% and will require a second appraisal.
A cash-out FHA refinance loan is when a borrower refinances their current mortgage for more than they owe in order to pull out the built up equity that has accrued in the home. The amount a home owner can borrower is limited by the value of the property compared to the loan amount (otherwise known as the loan-to-value or LTV).
The following are basic requirements of a cash-out FHA refinance home loan:
Borrowers who are delinquent or in arrears under the terms and conditions of their current mortgage(s) are not eligible for a cash-out FHA refinance.
The subject property must have been owned by the borrower as his or her principal residence for at least 12 months preceding the date of the loan application. If the borrower has not owned the the property for a minimum of 12 months, the FHA refinanced insured new mortgage is capped at 85 percent LTV. In such cases, the FHA mortgage amount must be calculated using the lesser of the appraised value or the original sales price of the property multiplied by 85%. However, a sales price need not be considered if the property was acquired as the result of inheritance and is or will become the heir’s principal residence
If said property is encumbered by a mortgage, the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months, i.e., no payment may have been more than 30 days late and is current for the month due.
Applies to owner occupied properties only.
The property that is security for the FHA refinance mortgage must be a 1- or 2-unit dwelling.
Loan amounts may not exceed the maximum loan limits for the area.
Subordinate financing may remain in place, but subordinate to the FHA refinanced insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the homeowner qualifies for making scheduled payments on all liens.
All borrowers must credit qualify.
Any co-borrower or co-signer being added to the note must be an occupant of the property. Non-occupant owners may not be added in order to meet FHA's credit underwriting guidelines for the mortgage.
If a homeowner is pursuing a cash-out FHA refinance and the loan balance exclusive of FHA’s upfront mortgage insurance premium will exceed $417,000, the loan-to-value may not exceed 85 percent of the appraiser’s estimate of value.
Highlights of the New Program
FHA Hybrid Adjustable Rate Loan
In addition to 1-year ARMs, under this rule change, FHA:
may insure ARMs on single-family properties that have interest rates that are fixed for the first three years, five years, seven years or ten years of the mortgage term and adjusted annually thereafter. The 1-, 3-year and 5-year ARMs allow a one percentage point annual interest rate adjustment after the initial fixed interest rate period and a five percentage point interest rate cap over the life of the loan. The 7-year and 10-year ARMs allow a two percentage point annual interest rate adjustment after the initial fixed interest rate period and a six percentage point interest rate cap over the life of the loan.
For loans that are originated after April 28, 2005 HUD will insure a new 5 Year Hybrid ARM product. The new product will have CAPS of 2/6 which means that after the initial 5 year period it can change a maximum of 2% per year or 6% over the life of the loan. This program will also probably allow a 6% maximum change after the initial 5 year fixed terms. This loan is more standard to conventional loans and may result in better pricing for the consumer as it is better received in the secondary markets.
Borrowers choosing the 1-year ARM must qualify for payments based on the contract or initial rate plus one percentage point (1%). This only applies to the 1-year ARM where the loan to value (LTV) is 95.00 percent or greater. Borrowers choosing the 3-, 5-, 7- or 10-year ARMs are to be qualified at the entry level (note) rate (i.e., there is no requirement to underwrite at one percentage point above the note rate as there is for 1-year ARMs).
FHA's adjustable rate mortgage is based on the economic indicator index called the 1-Yr. T-Bill. You can find the current T-Bill rate on many websites like HSH Associates or in the Wall Street Journal.
Index + Margin = Fully Indexed Rate
(current 1 Yr. T-Bill Rate) + (percentage, usually 2.75%) = Interest Rate
Example:
Index = 1.3%(as of Oct 2003) + Margin of 2.75% = Fully Indexed Rate = 4.05%
Other benefits of the FHA adjustable rate mortgage is that you can "streamline refinance" to a FHA fixed rate mortgage at anytime
