Orange County FHA borrowers who are considering an FHA Streamline Refinance due to the recent drop in interest rates should move quickly to figure out whether a Streamline will benefit them or not. Because changes are coming. On August 5 FHA announced it's intention to increase the Monthly Mortgage Insurance percentage from .55% to .9% for loans over 95% loan to value. The Up Front Mortgage Insurance Premium (UFMIP) will decrease from 2.25% to 1%. This is to go into effect on September 7, 2010.
***Updated on April 30, 2012*** --- FHA announced on March 6, 2012 changes to the FHA Streamline refinance program, and that FHA borrowers whose FHA loans were closed and endorsed prior to June 1, 2009 will be able to keep their currently monthly mortgage insurance premium. In many cases this will result in significant savings for Orange County FHA borrowers.
How Does The MMI Increase Effect FHA Streamline Borrowers?
Let's assume a typical $400,000 FHA loan on a home in Irvine, CA. If the borrower has a current rate of 5.25%, they're principal, interest, and mortgage insurance payment would be approximately $2,392. If this borrower is being offered Streamline rate of 4.5%, the new payment (after taking into consideration a loan amount increase due to the UFMIP adjustment) would be approximately $2,232. That's an easy $160 monthly savings. But now, assuming the new monthly Mortgage Insurance will be .9%, the payment (and assuming a lower loan amount since the UPMIP will be less) would be approximately $2,315, or only a $77 payment drop. FHA actually requires that the payment, including taxes, insurance, and HOA, must drop by 5% for the borrower to be eligible for an FHA Streamline. This example would not qualify for a Streamline using the new Mortgage Insurance percentage. . Not even close.
Currently, for an Orange County FHA borrower to be eligible for an FHA Streamline they will need to drop their interest rate by at least .625%. This can vary depending on when they initially got their loan, along with other factors such as whether or not they have a Home Owners Association payment and how much it is. With the new calculation, FHA borrowers will most likely need to drop their rate by 1.125% to 1.25% to qualify for the 5% drop.
What is so Good About the FHA Streamline Refinance Program?
The FHA Streamline Refinance program makes it easy for Orange County FHA borrowers to take advantage of a drop in FHA interest rates without needing to fully qualify for the loan again. Streamlines can be done with no appraisal and no income documentation. This makes it a much easier, or "streamlined" loan process than when they borrower initially purchased their home. A Streamline is not for everyone. Because of an adjustment in the UPMIP, which is financed into the loan, a "break even" analysis does need to be reviewed before jumping into a Streamline Refi. It can quite often take 24 to 30 months to break even after considering the loan amount increase.
Orange County FHA borrowers should at least check if an FHA Streamline is right for them before September 7, which is when the changes are set to occur. An Orange County FHA Streamline lender can provide a detailed analysis which can help to make the right decision.
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