FHA Streamline Refinance may be the best thing going for some borrowers and not for others

(Last Updated On: February 24, 2016)

In part one of this blog I covered some of the details if an FHA Streamline refinance.  Here in part two I am covering how we determine if it is in your best interest to refinance using the FHA Streamline Refinance here in Texas

Defining FHA Streamline Terms

The FHA Streamline Refinance must have purpose – The applicants are requiredFHA Streamline refi may be a great program when refinancing to document that there is a “Net Tangible Benefit” in doing the refinance.  What is “Net Tangible Benefit”? A Net Tangible Benefit is defined by FHA as reducing a part of the mortgage payment (Interest plus participial plus mortgage insurance) by at least 5%. If you refinance from an ARM (Adjustable Rate Mortgage) that is considered  a net tangible benefit.  Taking cash out is not permitted under the Texas State Constitution when using an FHA Loan.

You may not increase your current loan balance to cover closing costs…except

FHA prohibits you from increasing the loan balance on a FHA Streamline Refinance to cover your closing costs.  The formula that is used is (Up front mortgage insurance premium PLUS the Current Principal Balance).  All other costs such as Title Fees, Escrow Fees and loan fees must either be paid as follows

  1. Paid through an interest rate credit by raising the interest rate
  2. Paid by the borrower at closing.
  3. Order an appraisal to obtain a higher value and roll in the costs

This brings up two questions:

  • What if an appraisal is ordered and comes in low?  In that case it must be used so if your value comes in lower or the same as you owe you will have to bring the difference plus closing costs to closing.  Everything is the same including according to the requirements in part 1 of this blog.
  • What if I choose to rais the rate to cover my closing costs? Of course if you choose to raise the rate to receive an interest rate credit at closing it may make the purpose of doing an FHA Streamline moot.  To apply for for an FHA Streamline refinance and see if it is in your best interest just go to our online application here and we will be happy to assist you.

Appraisals are not Required for FHA Streamline Refinances

FHA Streamline refinances appraisals are optionalThis option alone makes the FHA Streamline worthwhile in some cases. If you are in an area where your property values have dropped then you will be able to refinance based on the original appraised value.  For some borrowers this is huge.  As noted above there may be a  reason to order an appraisal so you can roll in closing costs. Once ordered and completed the appraisal and it’s value must be used.

FHA Mortgage insurance is still required for FHA Streamline Refinance

There are two types of FHA Mortgage insurance: Up Front and annual (paid monthly). The up front MIP called UFMIP is currently 1% of the initial loan amount.  So if your loan was $100,000 then your UFMIP would be $1,000.  Until a couple of years a ago the UFMIP was up to 2 1/4% or the original loan amount.

FHA Annual Mortgage insurance premium table

Term of loanLoan to Value% of outstanding balance
15-yearsover 90% 1/2%
under 90% 1/4%
30-yearsover 95%1.15%
under 95% 1.10%

Important Gotcha: FHA requirement that a borrower must pay FHA Mortgage Insurance for a minim of 5-years or when you reach 22% equity or 78% loan to value based on the original sales price of your home whichever occurs last.

Example: you have paid into your FHA Mortgage for 3-years and decide that now is the time to refinance.  If your current loan balance is 85% of the original appraised value and you will be at the 5-year mark and by making extra payments you’ll be at that magic 78% number in 4 1/2 years.  Two points come up when talking an FHA streamline refinance here.

  1. you must continue pay mortgage insurance until you reach the 5-year mark.
  2. If  you refinance the 5-year clock is reset and you will have to pay the mortgage insurance for 5-years again even if  have hit the magic number

FHA MIP Refund and Premium Changes

Great news about the Up Front FHA Mortgage Insurance Premium is that it’s refundable. One reason to do a refinance sooner than later is the FHA Mortgage insurance premium refund. To apply for for an FHA Streamline refinance and see if it is in your best interest just go to our online application here and we will be happy to assist you.

FHA MIP (Mortgage Insurance Premium) Refund table

     Monthof Year     
Year123456789101112
1807876747270686664626058
2565452504846444240383634
3323028262422201816141210

If you don’t know how much you paid you can locate that information on your HUD-1 Settlement statement on page 2 paperwork that you signed when you purchased your home.  From the chart above you see that your refund is larger the sooner you refinance.

Before you start counting your refund dollars yet realize that when you do a streamline refinance your Annual (Paid monthly) mortgage insurance premium mentioned more than doubled on April 18, 2011.  This may mean that while you get a lower rate and lower payment on your loan that your monthly payment may actually go up and this ties into the “Net Tangible benefit” that I mentioned earlier.

Apply for FHA Streamline and see if you are eligible

As you can see there is more than the advertisements lead you to believe regardingRefinancing using an FHA streamline in the Woodlands is easy an FHA Streamline Refinance If you would like to apply for for an FHA Streamline refinance and see if it is in your best interest just go to our online application here and we will be happy to assist you.  Remember the sooner you refinance the larger your refund and if it is not in your best interest we’ll tell you that too.   As always consult a Certified Mortgage Professional when considering any purchase or refinance.  They can alert you to both the benefits and pitfalls of refinancing in your particular situation.

 

This FHA streamline refinance information is correct and accurate as of today, Sunday August 20th 2017.  Mortgage requirements and guidelines change constantly not only here in the Woodlands Texas but nationwide and are slightly different from state to state.  If you get your information elsewhere, double-check this blog’s information first if you are in the state of Texas.  To do an FHA Streamline refinance in the Woodlands or anywhere else in Texas you MUST currently have an FHA Mortgage.

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