HUD recently announced changes to the FHA Streamline Refinance program that will offer tremendous savings to current Orange County FHA borrowers. In Mortgagee Letter 12-4, dated March 6, 2012, it was announced that FHA borrowers taking advantage of the FHA Streamline Refinance program, whose FHA loans were endorsed prior to May 31, 2009, would be eligible to refinance without having to adjust to the currently higher monthly mortgage insurance premiums.
Higher FHA Mortgage Insurance Premiums
Over the past 18 months HUD has increased the Monthly Mortgage Insurance premiums three times. Currently, the MMI for a typical Orange County FHA borrower, at 96.5% loan to value, is 1.25%. On a $350,000 base FHA loan, the MMI would be $364 per month. For an FHA borrower who had gotten their loan prior to May 31, 2009, when the FHA mortgage insurance was only .55, or $165 per month on a $350,000 base loan amount, the increase quite often was too much to be offset by the much lower interest rates available. In addition, after three years the initial Up Front Mortgage Premium (UFMIP) is completely gone, meaning that in order to FHA Streamline Refinance, the borrower would have to deal with a loan amount increase equal to 1.75% of their loan balance (under the current guidelines. ) Although the FHA Streamline program is typically closed as a "no cost" program, the loan amount increase due to the UPMIP, along with the more than double increase in the Monthly Mortgage Insurance, served as a major deterrent.
Important Changes to FHA Streamline Program - Mortgagee Letter 12-4
- Current FHA loan must have been closed AND endorsed by FHA prior to May 31, 2009
- The new Annual Mortgage Insurance Premium will be .55%, regardless of the based loan amount.
- The Up Front Mortgage Insurance Premium will be .1% (rather than the new 1.75%) of the base loan amount.
- The FHA Case Number cannot be assigned until on or after June 11, 2012
Example of Savings on 2102 FHA Streamline Program
As an example, let's assume Johnny Smith bought a home in Irvine for $426,000 in March, 2009. He took full advantage of the low down payment offered with FHA financing, ending up with an FHA loan of $418,284 at an interest rate of 5%. His principal and interest payment is $2,245, and his current MMI is $182. The current balance of his 30 year fixed loan, after 36 months, is $398,223. Johnny can now refinance to an interest rate of 3.75% (4.411% APR). His new principle and interest would be $1,845, and the new MMI would remain at $182 (.55%*$398,223/12). His total monthly savings would be $400 per month. Johnny can pocket the money, put it into savings, or use the savings to pay the principal on his loan down more quickly. Let's assume Johnny decides to continue making a payment equal to his current (5%) payment, but with the $400 going straight to principal. Over 5 years he would save $26,352. Even better, he would knock 63 months off the end of his loan, saving $143,768 over the life of the loan. To see a Side by Side Analysis video presentation of this Click Here.
What is Needed to Qualify for an FHA Streamline Refinance?
- Current loan must be FHA
- No late payments in last 12 months
- Loan must have closed AND been endorsed by HUD May 31, 2009 or prior.
- A job. The lender will verify the borrower has a job, but will not verify income.
- Most lenders require a 640 minimum FICO score.
The FHA Streamline Refinance Program Does Not Require:
- No Appraisal
- No income documentation
- No closing costs - most lenders will close an FHA Streamline refinance with all closing costs credited using a lender credit. FHA does not allow closing costs to be financed into the loan.
The Orange County FHA lender cannot pull the FHA Case Number until June 11, 2012. However, lenders can get the application going, lock the rate, and prepare for a quick closing once June 11, 2012 comes. So for those Orange County FHA borrowers who have held out and not refinanced because they didn't want to deal with the higher Mortgage Insurance rates, now is the time to finally take advantage of low interest rates.
Authored by Tim Storm, an Orange County, FHA Refinance Loan Officer MLO 223456– Please contact my office at Home Point Financial for more information about an Orange County, CA Mortgage. 949-829-1846.
Contact us for your Orange County FHA Streamline Refinance:
949-829-1846 | tstorm (at) ochomebuyerloans.com