If you currently have a FHA loan and you've wanted to take advantage of lower rates but have been worried about poor credit, insufficient home equity or falling income, you really need to take a look at the benefits of an FHA Streamline Refinance program.
For many streamline borrowers, there isn't an appraisal or full credit check and a refinance may require little or no cash up front. Speak to a loanDepot licensed loan officer for the answers to all your lending questions. Call today for more information.
As good as FHA mortgages are – and they are very good – borrowers may want new financing to take advantage of lower rates to reduce their monthly costs or to switch from adjustable to fixed-rate financing.
If you get a new FHA mortgage, you have to make two kinds of mortgage insurance payments: First, there's an up-front mortgage insurance premium (MIP). Second, there's an annual mortgage insurance premium.
FHA recently reduced the annual MIP for most new loans from 1.35 percent of the outstanding loan balance to 0.85 percent, thus reducing costs for these new loans. That equals a significant savings.
How can existing FHA borrowers take advantage of the new policy as well as today’s lower rates? The answer for many is the FHA Streamline Refinance program. It can reduce your annual mortgage insurance premium and possibly your rate with little or no upfront costs.
For many FHA borrowers, it is a chance to save money every month without a lot of expense or hassle. For most FHA borrowers, that's a very good deal.
FHA LOAN FEATURES
No appraisal: The FHA does not require an appraisal on a streamline refinance, which is important because it means borrowers with little or no equity may be able to refinance. If an appraisal is obtained and the valuation is too low, FHA even says it can be ignored.
No credit check: FHA does not require a minimum credit score and there's usually no full credit check or credit report review required.
‘No-cost’ refinance: The government allows lenders to do a FHA Streamline Refinance on a “no-cost” basis, meaning the lender pays most or all closing costs in exchange for a somewhat higher interest rate or APR. To see whether this benefits you, compare the monthly payments you would make to refinance and the monthly cost for a no-cost refinance.
MIP credit: If your FHA loan is less than three years old, you may be eligible for a credit to offset the cost of the upfront MIP premium on the new refinance loan.
When you first got FHA financing you went through a vigorous application process to show you could afford the mortgage, but with an FHA Streamline Refinance you can forget many of the hoops and hurdles associated with a new loan application. Here's a short list of what most current FHA borrowers need for a Streamline Refinance:
You must currently have an FHA-backed mortgage. The loan must be not less than 210 days old, meaning you have made at least six monthly payments.
Payment history: If the loan is less than a year old, then the borrower must have made all payments within the month due. No late payments are allowed. For loans aged greater than one year, the borrower cannot have more than one 30-day late payment during the past 12 months and all payments during the three months before the date of application must have been paid on time.
Jobs and income: The FHA “no longer requires lenders to certify employment and income on streamline refinance transactions.” Lenders, however, may want such documentation to assure loan quality. This often involves verification that a borrower earns income – not proof of how much income is earned (i.e. no paystubs, W2s or tax returns).
Repairs: The FHA does not require repairs to be completed on streamline refinances with appraisals, with the exception of lead-based paint repairs. However, lenders may require completion of repairs as a condition of the loan.
Escrow money: For FHA loans, the lender will require you to maintain an “escrow” or “trust” account to ensure that property taxes and property insurance costs are paid. With an FHA Streamline Refinance, the lender can essentially transfer the balance in your current escrow account to the escrow account of the new loan, a big cash savings at closing. However, this usually only occurs when the lender on the new loan is the servicing lender on the existing mortgage.
Net tangible benefit: The government wants to assure that those refinancing get a real benefit from the process, so it requires most refinances to have at least a 5 percent payment reduction. In certain situations, a switch from adjustable to fixed-rate financing is allowed. No cash can be taken out other than to repay the existing FHA loan.
Call now for more information.
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