This is a scenario I’m reviewing for one of my clients who lives in Seattle. His existing mortgage is a 30 year fixed FHA at 4.875%. He closed on this loan after June 1, 2009 so it does not qualify for FHA’s reduced mortgage insurance premiums*. However, he can still take advantage of today’s low mortgage rates as long as the refi meets HUD’s “net tangible benefit” requirements of reducing his payment by at least 5%.
HUD’s Net Tangible Benefit requires that the “PIMI” (principal, interest and mortgage insurance) payment be reduced by at least five percent or the refinance cannot happen. This has been an issue for home owners who would like to refinance from their FHA 30 year fixed to an FHA 15 year fixed as HUD does not make an exception for those who would like to shorten their mortgage term if the payment increases — even if the borrower qualifies with documenting their income (some FHA streamlines do not require income to be documented).
The Seattle client I’m working with is doing a “credit qualifying” FHA streamline refi for a 30 year fixed. His current principal and interest is $1171.55 and the monthly mortgage insurance payment is $95.90 for a total PIMI payment of $1,267.45. His new PIMI payment needs to be less by at least 5% ($63.37) which means his new PIMI needs to be $1,204.08 or lower.
As of 10:00 am this morning (July 6, 2012) I’m quoting 3.375% for a 30 year fixed FHA streamline refi with no appraisal (apr 4.554) with a base loan amount of $212,750. After his upfront mortgage insruance premium credit from his existing FHA insured loan and interest rate credit, he’ll need to bring in about $1200 at closing. He won’t have a mortgage payment due until a month after closing and receiving a refund of his existing reserve account balance a couple weeks after closing.
But what about the new PIMI? Principal and interest is $957.01 and the monthly mortgage insurance is $210.85 for a total PIMI of $1,167.86. The new refinance meets HUD’s net tangible benefit requirement.
The Seattle homeowner is reducing their payment by $100 per month. **And after 60 payments and when the loan balance reaches 78% loan to value, the monthly mortgage insurance will terminate.
**UPDATE 12/19/2012: FHA mortgage insurance will not be cancelled on new mortgages effective January 2013. It will remain on the life of the loan (until it is paid off or refinanced to a non-FHA mortgage).** Read more here.
*NOTE: If the FHA mortgage being refi’d was endorsed by HUD prior to June 1, 2009, the savings would be even greater as it would qualify for reduced mortgage insurance.
If you have an FHA insured mortgage and are interested in an FHA streamlined refinance on your home located anywhere in Washington, please contact me. I’m happy to help you!