Orange County homeowners with an FHA loan have been able to lower their interest rates by taking advantage of the FHA Streamline Refinance program. With mortgage rates near all times lows, there has never been a better time to at least research whether a FHA Streamline with help your financial position.
What is an FHA Streamline?
The borrower must currently have an FHA loan, because the Streamline program "Streamlines" the refinance process for people who already have been approved by FHA. The lower rate must provide a true benefit for the borrower. FHA guidelines require that the borrowers total PITI payment must drop by at least 5%. For example, if your total PITI (Principle, interest, taxes, and insurance) is 2,000 per month then the new payment must drop the payment to at least $1,900. While there are several factors that have an effect on this calculation, a rate drop of .5% at a minimum is typically needed to meet this threshold.
FHA updated several guidelines at the end of 2009 which were meant to protect FHA borrowers. The borrower must have had their loan for at least 6 months. Typically it will need to be a little longer, because FHA needs to have received at least the 6th Monthly Mortgage Insurance payment from the lender. So if you are making your payment 15 days after the due date, and it takes the lender two or three weeks to forward the MI to FHA, you may need to be in your loan for 7 months before having access to an FHA Streamline Refinance.
No Appraisal, No Credit, No Income
The FHA Streamline is fairly "painless" compared to the loan process when you bought your home. No appraisal is required, unless you are choosing to add closing costs to your loan. Most Streamlines are closed with all closing costs credited by the lender, so why go through the effort and expense of having an appraisal? While technically no credit report is required, most lenders require a minimum FICO score of 620, so a credit report will be run. Also, the lender will use the credit to verify the mortgage rating. Multiple 30 day late's are not acceptable. But don't worry about collection accounts or other items on the credit report, because they will not be on the loan application and are not used in the underwriting process. Also, debt to income ratios are not calculated. No tax returns, W2's, or paystub's. The new lender will need to verify that you "have a job", but will not review the income.
The First Step for Orange County FHA Loan Borrowers
The first step for current Orange County FHA borrowers is to find a local Orange County FHA Expert who can help them determine whether a Streamline Refinance makes sense. Even though all closing costs are credited by the lender, there are other things to consider. The UpFront Mortgage Insurance Premium will be adjusted up, which does factor into the "breakeven analysis". Also, how long will you remain in the home? Maybe a 5 year adjustable rate mortgage with a lower rate will provide more benefit. Finding an Orange County Loan Officer you can trust will help you make an informed decision.
***Updated April 30, 2012
On March 6, 2012 FHA announced an improvement to the FHA Streamline Refinance program. Now, FHA borrowers who loans were closed and endorsed on or before May 31, 2009 will get the keep their current annual mortgage insurance premium rate. Mortgage insurance rates on FHA loans have doubled over the past 18 months, so this announcement will save Orange County FHA borrowers thousands of dollars.
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