The FHA Streamline refinance will be how most current FHA borrowers in Orange County take advantage of President Obama's recent announcement about lowering the Mortgage Insurance premiums on FHA loans in 2015. Right now is almost a perfect storm when it comes to looking at the reasons to refinance a current FHA loan. Interest rates are at a low point for the last 24 months, while at the same time the monthly FHA mortgage insurance premiums have been lowered by .5%. The lower mortgage insurance will be effective with all new FHA case numbers pulled on or after January 26, 2015.
Low FHA Interest Rates and Low Mortgage Insurance
This is the first time since 2001 that FHA has actually lowered its mortgage insurance premiums. For many years the annual mortgage insurance premiums, which are paid on a monthly basis as part of the overall FHA mortgage payment, was .5%. Then in April 2010 FHA began increasing the annual premium, first to .55%. Then, in October 2010 it increased to .9%. In April 2011 it increased to 1.15%, and in June 2012 it increased to 1.25%. In April 2013 it had it's final increase to 1.35%. For some borrowers with loan amounts greater than $625,500, which is not uncommon in Orange County, the annual MI was even higher. The .5% drop, back down to .85%, is a significant drop which takes it all the way back to 2010 levels.
For an FHA borrower who bought their Orange County home after June 2012, the savings from refinancing using the FHA Streamline refinance program may be worth it. Let's assume a first time buyer bought a home in Irvine, CA with an FHA loan whose current balance is $500,000. Using approximate numbers, their FHA mortgage insurance would be approximately $562 per month (1.35% x $500,000 / 12 = $562). By taking advantage of the FHA Streamline program to lower the mortgage insurance to .85% (and possibly even .8% depending on the new loan balance and the original purchase price), the new monthly MI would be (approximately) $354, creating a monthly savings of $207. Combined with the fact the interest rates may be lower as well, the savings could add up quickly.
What is an FHA Streamline Refinance?
The FHA Streamline refinance is only for current FHA borrowers. It is the quickest and easiest way for an FHA borrower to take advantage of a lower interest rate, or in this case, a lower mortgage insurance rate. But what makes the program "Streamlined"?
- There is no appraisal. This is a time and money saver.
- There is no income verification.
- There is no debt to income calculation (thus no income documentation)
- Only a mortgage rating required. Other debts are not entered on the loan application.
- At least 6 payments on the current FHA loan must have been made.
- 30 days of interest can be included into the new loan amount.
- Closing costs are typically paid using a lender credit, resulting in a "no cost" loan.
How to Know if it Makes Sense to do an FHA Streamline Refinance
The best way to find out is to talk to an Orange County FHA Loan specialist. The FHA loan officer should be able to prepare a Side by Side Total Cost Analysis comparing your current FHA loan to a new FHA loan. It is important that the loan officer fully explain and educate the borrower so that the FHA borrower can make an educated decision based on their long and short term financial goals with their home and loan. In some cases, if property values have increased enough, it may even make sense to refinance the FHA loan into a Conventional loan and drop the mortgage insurance altogether. The loan officer should be able to help the FHA borrower see all their options.
Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Home Point Financial. Direct line at 949-640-3102. www.OrangeCountyFHAExpert.com. I prepare custom FHA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.