FHA Streamline Refinance: Some Rules Effective January 1, 2009
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[Update: Please go here for the current 2010 FHA Streamline Refinance Guidelines.]
This site is primarily focused on providing information for originators of FHA loans, but this post should be useful to both loan originators/processors and consumers. With mortgage interest rates plummeting to record levels, and home sales plummeting as well, many people have a renewed interest in refinancing for lower interest rates and sometimes shorter mortgage terms.
The FHA streamline refinance is a great option for quite a few of them. Here are the rules which will be in effect beginning January 1, 2009 for calculating FHA streamline refinances.
In order to qualify for an FHA streamline refinance you must be a homeowner who currently has an FHA-insured mortgage. Streamline refinances for conventional mortgages are in the planning stages, but have not been implemented yet.
An FHA streamline refinance does not require any proof of income or any verification of funds to close. No repairs are required unless the house has lead paint. FHA does not require a credit report, but some lenders may require one for loan pricing purposes. FHA guidelines require only a verification of the mortgage payment history for the last 12 months (or the length of time the mortgage has been held). HUD’s Credit Alert Interactive Voice Response System (CAIVRS) need not be checked, but a check of HUD’s Limited Denial of Participation (LDP) and General Services Administration (GSA) exclusion lists is still required for all borrowers.
FHA does not require a termite inspection letter for streamline refinances, however lenders are allowed to require one and some do. No mortgage credit underwriting is required. Individuals may be added to the property title without verification of credit worthiness. If any borrower is removed from the title and loan the remaining borrower must go through the full credit qualifying process unless the property was transferred without triggering the due on sale clause due to a divorce decree or inheritance more than 6 months ago and the borrower can prove (canceled checks) that they have been making the payments themselves.
At closing the borrower can receive no more than $500 or the loan must be sent back to the underwriter. This makes it extremely important for the loan originator/processor to verify all attorney/title fees, payoffs and lender fees prior to underwriting.
If there is a second mortgage or equity line, it may be subordinated (legally placed in second position again in spite of a new first mortgage) without regard for the total loan to value. Keep in mind that many second lien holders today are surprisingly difficult to negotiate with.
There are two types of streamline refinance – with an appraisal or without an appraisal. Several different factors will affect which version you choose.
If you purchased your home less than 12 months prior to applying for the refinance, no appraiser in his right mind is going to appraise it for much more than the purchase price in today’s market. Thus if you have reason to believe that the appraised value will be lower than your original sales price, then you would obviously try, if possible, to use the no appraisal FHA streamline refinance. Sometimes this is difficult unless there was a substantial down payment made at the time of purchase. HUD has made a nice accommodation in this area. If the appraisal has been done, but the value is such that it makes more sense for the borrower to proceed as if no appraisal has been done, the underwriter is allowed to ignore the appraisal.
For streamline refinances without an appraisal, the maximum loan amount is the lower of:
- The original principal balance including the FHA upfront mortgage insurance premium from the original closing. (This can be obtained from the Refinance Authorization screen in the FHA Connection) minus any refund from the original upfront mortgage insurance premium, plus the new upfront mortgage insurance premium (1.5%) or
- The total of the principal balance on the existing first lien plus up to one month of the monthly mortgage insurance premium plus the mortgage payment (PITI) that was due on the first of the month of closing (if not already paid), plus up to 30 days interest for the current month, plus any late charges or escrow shortages, plus borrower-paid closing costs plus prepaid expenses (per diem interest to end of month on new loan plus hazard insurance deposits plus real estate tax deposits plus reasonable discount points), minus the upfront MIP refund (if applicable) plus the new upfront mortgage insurance premium (1.5% of the base loan amount).
The mortgage insurance refund for all loans originated after December 8, 2004 is only paid when refinancing to another FHA loan and not when any FHA loan is paid off as it used to be. The following chart shows the percentage of the original upfront mortgage insurance which will be refunded:
FHA Upfront Mortgage Insurance Refund Chart
For an FHA streamline refinance with an appraisal, – with NO credit qualifying, the maximum loan amount will be the lower of the two calculations below:
- The total of the principal balance on the existing first mortgage plus up to one month monthly MIP plus the mortgage payment (PITI) that was due on the first of the month of closing (if not already paid), plus up to 30 days interest for the current month, plus any late charges or escrow shortages, plus borrower-paid closing costs plus prepaid expenses (per diem interest to the end of the month on the new loan plus hazard insurance deposits plus real estate tax deposits plus reasonable discount points), minus the upfront MIP refund (if applicable) plus the new upfront mortgage insurance premium (1.5% of the base loan amount).
- Multiply the appraised value of the property by 97.75%
Note: This article has been revised due to HUD guideline changes. The Housing and Economic Recovery Act of 2008 eliminated the variable loan to value requirements that had been in place for different states and also limited the amount of the mortgage plus upfront mortgage insurance payment to 100% of the appraised value. In Mortgagee Letter 2008-23, HUD originally used this 100% of appraised value standard and eliminated the 97.75% loan to value limitation. However, to simplify things Mortgagee Letter 2008-40 changed the standard back to 97.75% of the appraised value. A matrix outlining the new FHA refinance requirements is available here.
CONSUMERS: If you have questions about streamline refinancing which are specific to your own loan such as interest rates, whether refinancing is worth it, closing cost questions, Please DON”T leave the question in the comment section. I may not see it for a while. Use the contact form below or the Contact link at the top of the page.
FHA Streamline Refinance Guidelines 2010
Related posts:
- Streamline 203K FHA Loans – The Basics Part 1
- Streamline 203K FHA Loans – The Basics Part 2
- HOPE for Homeowners Origination Guidance From HUD
- Manufactured Home Refinance With FHA Loans Part. 1
- FHASecure Guidelines Released
Tagged with: FHA Streamline Refinance
Filed under: FHA Streamline Refinance
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Great FHA site! We refer to it often when underwiting FHA loans for our clients
Hi need info on streamlining my existing FHA loan
Meg – I emailed you for more info.
question. I have a FHA loan from 2002 7.5% interest. Original price was 72,300. I now owe about 64,000 and am doing a streamline for 5% paying 2 points and having points and closing costs tacked on to the 64,000. One of the costs is for the upfront MIP. Will I receive a refund for the upfront MIP that I paid on the original loan since I have been paying MIP monthly from the very beginning of the loan and also what happens to the money in my escrow or is that just held over for my new loan. They did say I will get a refund after the new loan closes but didnt say for what or how much. The original and the streamline are both with Wells Fargo. Thanks
On an FHA loan you are charged both an upfront mortgage insurance premium (which is added to the loan amount) and an annual mortgage insurance premium that is divided up into monthly payments. There is never a refund of any part of the annual mortgage insurance premium. The upfront MIP is refunded based upon a prorated 3 year schedule. If your loan is older than 3 years, you are considered to have “used up” your upfront mortgage insurance premium and therefore you get no refund.
Some lenders will transfer an escrow balance from one loan to another when they are already servicing the loan. Some will not. In this case, the numbers that have been worked out for you apparently include setting up a new escrow account and the refund will get will be the balance left in your escrow account.
NEED MORE INFO ON FHA STREAMLINE REFI, I BOUGHT MY HOUSE 4 MONTHS AGO WITH A 6.32% RATE AND WOULD LIKE TO REFI TO AVAIL OF THE LOW RATES, DO I NEED 6 MONTHS MORTGAGE PAYMENT HISTORY? PLEASE HELP.
How long do you have to own your home before refinancing?
For a rate/term refinance – as opposed to cash out – you can do a streamline refinance as soon as your loan has been insured by FHA. Usually this is right after the first payment. However, it usually doesn’t make much sense to do it that soon when you run the numbers. Unless you really got robbed on your interest rate on your present loan.
DJ – You can streamline an FHA before 6 payments. However, at your present interest rate a refinance would probably not result in enough savings to make it worthwhile. You should have a couple of loan officers run the numbers for you.
we got an fha loan in 2000 at 8.25%. original principal $96,000. current principal balance $79,000 (we have been using equity acceleration). the fha insurance ended March 2007. Is this still considered an fha loan? Can we streamline refinance (the mortgage has changed hands a few time)? Should we wait for lower rates?
I refinanced my house 6 months ago to a 6.87% with buying the rate down. I called my FHA lender to streamline down to a lower rate and was told that we could go to a 5.5%. Later he called and said that h had not read his emails from last week but my husband’s beacon score was OK but mine was too low according to FHA’s new guidelines for streamlining. Are there new rules? Thank-you Susan
Susan,
HUD/FHA has not changed any guideline regarding credit scores. However, many individual lenders have set minimum credit scores in the 600-620 range. Many don’t apply that rule to FHA streamline refinances though. Taylor, Bean and Whitaker is one lender that doesn’t. They are both a wholesale and retail lender. If you need help locating a lender, click on the contact link at the top of this website and I will help.
Thanks!
Carl Pruitt
I have streamlined my fha; I was charged the upfront mip but told that I will get a refund from my old fha loan? is that true and how much will I get; my original loan was done in sep 08.?
Sabrina,
The UFMIP refund is credited toward your new upfront mortgage insurance payment at the loan closing/settlement. It should be shown on your HUD-1 closing statement. You can determine what percentage you were due back from the chart in this article on streamline FHA refinances.
Brad,
The loan is still an FHA insured loan even though the insurance is “paid up”. You can do a streamline refinance, however you will have the UFMIP and the annual MIP start all over again. Someone would have to run the numbers for you to see if you would benefit.
My mortgage broker tells me if I sign up for the FHA Streamline Refi at 5% (currently), if FHA rates should drop, he can streamline down to the lower rate at no further cost to me and he can do it more than once. Is this true?
Steve,
As the old sayings go “You can’t get something for nothing” and “If it looks too good to be true it probably is”.
Every loan costs money to close even if the mortgage company does it completely for free. Those charges must be paid either by adding them to your loan or by increasing your interest rate you pay. If you have a Good Faith Estimate from this broker already, take a look at the charges. Most of them will be still be there every time you do a streamline refinance even if the mortgage broker does their work for free next time. The government is still going to charge all their taxes and recording fees. There will be new attorney or title company fees, new processing and administrative fees and so on. Even if the mortgage broker works for free next time. Telling you this is usually just a tactic to get you to move ahead. Ask the mortgage broker to guarantee in writing signed by the owner of their company that any future streamline refinance will have no costs and watch how fast they back peddle. Keep in mind, however, that if they do agree to that in writing they can’t do it anyway!
That being said, interest rates have never in history been much lower than 5% – ever. Timing the bottom of the market is something that even the experts have never been able to do. For a variety of reasons, there is a good chance that rates will hit a bottom and bounce back up very quickly. Rates change many times a day based upon changes in the mortgage bond markets. The difference in your total costs between 5% and the lowest the market will ever go are most likely to be minimal.
For some people, the smart financial move if you are not experiencing or expecting to experience some financial difficulties, is to refinance at a lower rate and a shorter mortgage term so that your payment does not go down or maybe even goes up but you save many more thousands over the years.
We just closed on Wednesday at 5.5% FHA loan. We see rates are dropping more, and asked if we could get a lower rate (we have a shorter term- 20yrs) since we have three days to cancel the loan. They said they could streamline it to a lower rate before we make our first payment and the cost to us would only be for additional interest paid up or MI paid up. We were already hit with all the big fees. We have until tomorrow to cancel and start over and get a lower rate, or go along with this streamline. I just can’t help but think they aren’t telling us the truth about extra fees.
Any thoughts?
Chris,
Some of the charges and monetary outlays involved in refinancing will always be there. Setting up new escrow accounts, recording fees, attorney fees, taxes. The only charges the lender has any control over are their own charges, not the attorney/title company’s or the governments. There are some charges involved in backing out and re-closing (processing, redraw fees, extra attorney fees) but in my opinion they would be far less than the hassle of streamlining the loan again. It sounds as if they are hoping you will consider it too much of a hassle to streamline again and will forget it.
If you are dealing with a mortgage broker, one potential problem may be that they have a lock commitment on your loan with the lender and are thus unable to lower the interest rate without reprocessing the loan and submitting it to another lender.
Once you let the rescission period expire, you are no longer in control. Any promises they made about charges involved in a new streamline would be worthless and unenforceable at that point.
I have called to a few places that sent me solicitations regarding a FHA streamline refinance. From what I can see, they are all picking a magicigal rate of 5.5%. The reason I call it magic, is because it does not take me as the borrower into consideration. It seems like they are all charging me between 1-1.5% from the actual rate that is availabe in the real world of non -magical rates. I just want to know what the deal is with that seemingly arbitrary 5.5% rate. Please help.
I purchased my home back in August with an FHA loan. I then refinanced in December to a 5.5% interest rate. My home would probably appraise for less than what I paid for it a few months ago. Is it possible to refinance my loan again, rolling the costs back into the mortgage? Can I buy the interest rate down and throw those costs back into the loan? If so, how much money can I roll back into the mortgage? I’m not worried about the principal on my house going up, I would like the payments to come down so that if I decide to move sometime in the future I can rent the house for more than I pay on my mortgage. Thanks!
I was just contacted by a rep from Federal Housing Aid, Inc. He says he can get my FHA loan refinanced using the FHA Streamline, for NO COST to me. He said the lenders pay him one point; he gets his money from the lender. How can I verify that this company is legit (please don’t tell me the BBB, that is a joke) and have you heard of this type of offer. I really need to lower my payments, but I sure don’t want to make my financial situation worse, or give out personal info to a scam artist. Thanks!
I have a few clients that call me saying they are being offered a streamline and the loan ended up being higher then there original balance. Can this be true?
I have a client that is getting a FHA streamline from another company. There new loan is higher then there original balance. Can this be true?
Yes. The new loan amount can be higher than the original amount. See the calculations above for “streamline with appraisal”. The loan amount only has to remain below the original amount if you want to do the refinance with no appraisal.
It is technically possible, but as the old saying goes “There is no such thing as a free lunch”. Every streamline refinance is really a new loan that pays off the existing one. Therefore, there are closing costs associated with this that must be paid by someone. They can be added into the rate though if the numbers make sense.
I first purchased my home in 2008 under 203k for a hud hoometo be fixed up.. the 203k rate was 7.5 at the time but I planened to refinance as soon as the repairs were done.. Today I streamlined my loan for 5.25 today no point or discounts. my payment went from $2035 to 1712. My original loan amount was at 214k now it is 217 K b/c of the closing cost but it is worth it to me…. my 3000 closing cost are saved withing 10 months.. i am so Happy…
We purchased a house in July of 2008 using a FHA loan with an interest rate of 6.375. By the time we pay the associated costs would it make sense to do a streamline refinance at an interest rate of 5.25?
Melanie,
It depends on your individual circumstances including your loan amount, exactly what the charges are and how long you plan to stay in the home along with your personal financial preference and situation.
If i have been paying PMI since the beginning of my loan will i be able to use the refund toward my closing cost in the streamline loan.
Upfront MIP is refunded based on the schedule shown in the article above. It is credited against your new upfront MIP. You do not get a refund of the monthly amounts you have been paying.
I’ve recently looking into an streamline for my FHA loan from 6/08 and was told with credit score of 714 that I could not do a streamline because of a bamkrucpy that will be 10yrs old in 12/09. This is with the original lender of my FHA. This true and how much can the loan be for? My understanding is if with all cost included the loan amount is less then purchase loan amount that it should be ok.
Thanks
Wendy
I purchased a house in 2003 with a FHA loan – interest rate 5.5 with PMI. Before the downturn of the market, I had well over 20% in equity and I requested to have PMI removed and they did not remove it. Note at this time i had lived in my property for 5 yrs and had well over 20%.. Now with the downturn, I am trying to refinance my property to remove the PMI… Can i refinance my loan with a FHA streamline without having PMI added, or will PMI still be added. What is the current interest rate for an FHA streamline for those who have well over 700 in credit score
This is a small distinction, but on an FHA loan it is called MIP. PMI stands for private mortgage insurance. On government loans MIP stands for mortgage insurance premium. FHA loans have two separate types of MIP. Upfront mortgage insurance premiums and annual mortgage insurance premiums. The upfront MIP is usually added to the loan amount and refunded on the schedule given in the article above. The annual MIP is divided into 12 monthly installments each year. It does not stop when you have over 20% equity based on the value, but when you have paid off 20% of the original loan amount. Otherwise, it will run the full term which is what it sounds like has happened in your case.
Every 30 year FHA loan will always have annual MIP. 15 year loans at less than 90% loan to value do not have to have it.
I cannot quote an interest rate without a full interview and knowing all the numbers involved but you can expect the rate somewhere in the high 4s to low 5s out in the market right at the moment. (Rates change many times a day based on the mortgage bond markets, so anyone reading this at any other time than the date and time on this comment should not rely on that statement)
Quick question..if you are broker approved for FHA..do they go through a annual review procress with you to recheck your credit? and where would I go to find that information?
Susan,
FHA approval has to be renewed each year and the owner has to certify that they still have acceptable credit, however the real purpose of the renewal is to submit new audited financials. Generally, the only time an owner’s credit would be reviewed again would be in an audit situation which could come up at any time or never.
I NEED INFORMATION ON A STREAMLINE FOR A MANUFACTORED HOME WITH AN FHA LOAN I CHECKED WITH MY MORTGAGE CO.WELLS FARGO BUT IT WAS AROUND 5.5% WHERE CAN I GET A LIST OF COMPANYS THAT MIGHT STREAMLINE AT THE REPORTED MID TO HIGH 4s IF THEY REPORT MID TO HIGH 4s THERE MUST BE SOMEWHERE TO GET THEM
David,
Rates quoted in newspapers and news reports are nearly worthless for comparison.
First, reported rates are generally only for very vanilla conventional loans under 80% loan to value on regular single family homes. These rates do not reflect the circumstances of a particular loan, such as rate add-ons for manufactured housing for example. They also don’t take into account your particular loan amount, desired level of closing costs, type of loan and various other potential additions to the rate. Government rates in the market tend to be just slightly higher than conventional rates (not always but most often).
Second, these reported rates are always reporting for the past week and not the present. Rates change many times per day based upon the mortgage bond market. For instance, rates were lower last week than they are this week so far. Yet that may or may not be the case by the end of the week. The reported rates will be the rates that the week ended with, even though they may have varied significantly on any day during that week.
The best way to find a good rate is to contact different local lenders in your town. Give the loan officer all the details and let them give you an accurate timely quote rather than relying on the inaccurate and outdated information reported in the news.
Carl
I have a guy from Metro Finance that says he can give me a 5% rate on an fha streamline refinance with no increase in my current loan amount and no upfront charges. This seems too good to be true but from what I have been able to find sounds possible. Is it and do you know anything about this company.?
I would like more information on an FHA Streamline and taking cash out. Is taking out cash for debt consolidation an option with the streamline?
I streamlined my loan last month and was told in writing as well as verbal by the service provider that I would be receiving a check for my MIP. I have since discovered that the amount was credited towards my new UFMIP. What recourse do I have for this misleading information?
Bridgette,
I’m very surprised that any lender would put such a promise in writing since the old UFMIP is always credited against the new UFMIP on a streamline refinance. In fact, that is now the only way to get any credit at all for unused UFMIP. If you pay off the loan by selling the property or by refinancing with a conventional loan, you would get no form of refund at all.
You can certainly complain to the state authorities about the misleading information, but I imagine it will cause no more than a reprimand since I know there were documents in the loan closing package that let you know how the refund is issued. These disclosures are included with every FHA loan closing. In addition, since the way it was handled – as a credit against your new UFMIP – is the only way FHA allows it to be done, there are unfortunately no legally recognizable financial damages from the misrepresentation.
However, if you complain to the management of the lender, you may get some help. They usually don’t like for their loan officers to leave a trail of unhappy customers by making such misrepresentations.
Hi I was wondering what would be more beneficial: buying points before closing or doing an FHA streamline later on? Right now, we have a rate of 5.25 on a 400k loan and were thinking of buying down 1 point to bring our payment lower. We figure we would recoup our money in over two years and since we are planning to stay for more than 5 years, it would be worth it. However, our mortgage broker advised us not buy the point and to consider an FHA streamline when (if) rates lower down the road.
At first I thought it was a good idea to streamline but it seems to me that even though it would be easy to refinance I would have to start all over plus still pay closing costs which could be equivalent to how much we would pay for the point to lower our interest rate now. Am I missing something? Any advice?
Thank you,
Sandra
Sandra,
That will all depend on running the exact numbers on both the streamline and paying down the rate. You are right that a streamline refinance is going to cost the same in closing costs again, however buying down the rate by a point may cost as much right now. It isn’t as simple as paying 1 point decreases your rate by a point. The buydown will be based on current mortgage bond market prices, which vary by the hour. In addition, you can essentially keep the same remaining term for the loan when you do a streamline refinance. In fact, I encourage people to look into keeping their payment the same and decreasing the term when they are able to get a lower interest rate.
Your broker may not have been offering you the par rate and so would have lost all their profit on the loan if you decided to buy down the rate. This might have been behind the effort to dissuade you from buying down the rate. On the other hand, while 5.25% might have been paying the broker 1% in yield spread premium a week ago, it would not be paying that today.
Bottom line, though, is that you should be getting a comparison of the exact costs on your specific loan in order to make this decision.
Hi, I’am looking into doing a streamline fha refinance.The lender said he had two options for me. The first is a fha 30 yr fixed at 5.5% and the secound is a fha 5 yr arm at 4.25%. I currently have a fha 30 fixed at 6.125. I’ve always heard arms were not good choices. He assured me that rates have not hit there all time low yet and when they do he’ll refinance it for me. I asked if i had to watch the rates to determine when I should refinance and he said he would be the one to watch the rates and notify me before my 5 year arm is up. What do you think of the fha 5 year arm and if I go that route can I refinance at anytime before my 5 years is up?
Kim,
This is a dilemma faced by many people right now. For a couple of years, the difference between the 5/1 Hybrid ARM start rate and the 30 year fixed rate was so small that it made this a no brainer decision. Many days, the 5/1 rate was actually higher than the 30 year fixed rate! Now the hybrid ARMs have once again reached a point where they may benefit some people.
There are risks with an ARM. The 5/1 is fixed for 5 years, and has a 1% limit on how much the rate can increase each time once the rate becomes adjustable and can only adjust one time each year, but you never know what rates are going to do. My advice is to make your decision based upon a) how much you will save over the five year period and b) the worst possible scenario for rate increases after that. Do not count on a new streamline refinance if you decide to go with the ARM and don’t count on rates going down any further. This way, you can live with the worst case and be thrilled if rates go down further and you get the best case.
In your case you would have at least 5 years at the 4.25% followed by an increase to 5.25% the next year and then 6.25% the next. You could potentially save a lot of money with that lower rate. This is a particularly good plan if you plan to sell and move before 6 years.
It is accepted under the guidelines at this time to do another streamline refinance at any time, however take a look at the costs for this one. Your next streamline will cost just as much and possibly be more difficult to complete. When you do not go above your original loan amount, no appraisal is required. Usually, on a 2nd streamline refinance done relatively close to the the first one, the amount needed for closing costs and prepaids won’t fit within the guidelines and a new appraisal is required. If the market is down in your area when the time comes for this appraisal, your next streamline refi may be shot down quickly.
Carl Pruitt
http://FHALoanAdvice.com