The FHA Streamlined Refinance

February 5, 2009 by 3 Comments

EDITORS NOTE August 23, 2009:  With any mortgage information that you find on the internet, whether it's from a blog or website, be mindful that guidelines are changing constantly in this current climate and information may not be totally up-to-date. 

September 29, 2009:  HUD has issued revisions to FHA Streamlined refi's which will be effective mid-November.

If your existing mortgage is FHA, you may qualify for a streamline refinance to take advantage of today's lower rates.  "Streamline" means that there is less documentation involved for the borrower which allows the transaction to close quicker than a typical refinance.  With a FHA streamline refi there is:

  • no income documentation or verification. UPDATE 8/23/2009:  Many lenders are now requiring proof of income/employment to show ability to make the mortgage payment.
  • no minimum credit score requirements. 620 minimum credit score required by most lenders. UPDATE 8/23/2009: Many lenders are now requiring a 660 minimum credit score. 
  • no verification or documentation of assets (like bank statements, retirement accounts, etc).
  • an appraisal may not be required.   When an appraisal is used for an FHA Streamline, the loan to value is limited to 97.75% (this is also true for refinancing a non-FHA loan to a FHA insured loan).  When an appraisal is not used, there is no "loan to value" ratio and closing costs may not be financed. (Updated).
  • upfront mortgage insurance is reduced to 1.5% of the base loan amount (instead of 1.75% for a non-streamline FHA refi) ). 2.25% (and proposed to be changed soon). 
  • cash back to the borrower is limited to $500. 

The following are some of the requirements for a home owner to qualify for a FHA refinance:

  • the existing mortgage that is being paid off must be an FHA insured mortgage.
  • the borrower may not have been late (30 days or more) on their mortgage payment in the past 12 months.
  • the new loan amount is subject to FHA loan limits.  Note: if you have an FHA mortgage that was acquired in 2008 where your geographical loan limit was higher than the current 2009 limit, you may still qualify for the streamline refi as long as your new loan amount does not exceed the original loan amount and the loan to value is 97.75% or less.

If a property has been converted to an investment property with a FHA insured underlying mortgage, it may also qualify for a FHA Streamline refi with no appraisal and only for the outstanding principal balance.

Last but no least, make sure that your Mortgage Originator works for a company who is HUD approved.  Some loan originators are not and may try to illegally broker your loan to a company that is.  I have been helping Washington State families with FHA financing since 2000 and Mortgage Master is a Direct Endorsed HUD approved lender with our own "in-house" FHA underwriters.  They've been helping home owners in the Pacific Northwest since 1976!

If you're interested in obtaining a FHA Streamline refinance for your home located in the State of Washington, please email me with the following information: 

  • Property address (estimated property taxes and home owners insurance is a plus).
  • Original FHA mortgage balance from when the mortgage was obtained.
  • Original amount of UFMIP (upfront mortgage insurance premium) and when you obtained the FHA insured loan.
  • Current FHA mortgage balance.
  • Estimated home value (appraisal may not be required).
Filed Under: FHA, Refinance Tagged With:

Reviewing an ARM Note for a Neighbor in West Seattle

January 27, 2009 by Leave a Comment

I've been working with a home owner in West Seattle who has an adjustable rate mortgage that she obtained almost five years ago from a big "local" bank.   She contacted me to obtain rate quotes for refinance because her ARM is set to adjust soon.   Here's what a review of her Note reveals:

The Note rate is 4.125% for five years with the first adjustment coming up on May 1, 2009.   The index is based on the 1 Year Treasury (CMT) and her margin is 2.75%. 

If her ARM were set to adjust today, her new rate would be based on adding the margin of 2.75% to the 1 Year Treasury rate of 0.49% rounded to the nearest 0.125% = 3.25%.  (Indices are changing dramatically in our current climate–it's hard to say where the CMT will be on May 2009).

This rate is amortized based on the remaining term of 25 years and every May her ARM will continue to adjust based on where the current index is (1 year Treasury – CMT) plus the margin of 2.75%.   This is also limited to specific caps that her Note features of 2% annually and a lifetime ceiling of 10.125%. 

Let's assume her rate adjust to 3.25% in May 2009.  The highest her rate could be on May 2010 is 5.25% and the lowest is 2.75% (the lowest the rate may ever be is limited to the margin of 2.75%).  If rates continuing rising, the worse case scenario would look like this:  May 2011 = 7.25%; May 2012 = 9.25%; May 2013 = 10.125% (because of the lifetime cap of 10.125%).

If worse case scenario, the CMT climbs dramatically over the next few months, the highest her rate could be is 6.125% based on her 2% rate caps.

Should this home owner refinance with her adjustment date looming near?  It really depends on what her personal financial plans are and if she can tolerate having her rate change annually.  Her main risk is where rates may be in the future.   The choice is hers.

What would you do?

Are you a Seattle area home owner with an ARM?  I'm happy to review your Note for you–no refinance required.

 

Filed Under: Adjustable Rate Mortgage (ARM), Refinance

What to do if you missed out on refinancing with last week’s rates

January 22, 2009 by 2 Comments

Tuesday, following the holiday, rates popped up about a half point to rate.   Last week, the very same people I was quoting mid-to-high-4’s to who opted not to lock yet, now are receiving updates with rates in the low 5’s…much to their surprise.  Why didn’t they lock?  Because some want just 0.125% better in rate and some want the rate priced with zero points (which is a much taller order than 0.125% improvement in rate these days with rebate pricing almost non-existent).

[Read more…]

Filed Under: Interest Rates, Refinance

Condo’s Getting Spanked by Fannie

January 12, 2009 by 2 Comments

iStock_000061440694_MediumFannie Mae’s latest hits to rate will be implemented by lenders any day.  Condominiums are really getting spanked with a 0.75% add to fee if there is less than 25% home equity in the property.  This will apply to both purchases and refinances for any mortgage except those amortized 15 years or less.

 

If you are considering refinancing your condo, contact your local mortgage professional right away (I can help you if you’re located in Washington state)…if you’re in the process of buying a condo and are “floating” your interest rate, I highly recommend considering locking.

PS:  Cash-out refinances are also getting whammo’d by Fannie.  Don’t wait!

Filed Under: Condos, Fannie, Freddie and FHFA, Mortgage, Refinance, Residential Purchase Tagged With: ,

How Much Reserves are Required When Refinancing?

January 8, 2009 by 5 Comments

I had a great question yesterday from a potential client who asked how come my Good Faith Estimate was showing more reserves being required than the other lenders he was comparing me to. [Read more…]

Filed Under: Good Faith Estimate, Refinance Tagged With: , , , ,

Should You Wait for 4.5% Mortgage Rates to Refi?

December 8, 2008 by 6 Comments

Personally, I would not wait for the proposed, much talked about 4.5% mortgage interest rate.  Check out the last word from this Sunday's Seattle PI's real estate section: "4.5% mortgage rate seen as possible".

For the most part, mortgage interest rates are determined by supply and demand: they are bonds (mortgage backed securities) that are traded.  The Treasury has been discussing buying mortgage backed securities (MBS) from Fannie Mae and Freddie Mac which should lower rates.  Mortgage interest rates are not set or directly controlled such as the Fed Funds rate where the Fed decides exactly how much the rate will adjust, if at all.  Another factor to consider, if this becomes more than the current speculation, is that the talk has just been about purchasing Fannie and Freddie MBS.  Those who would potentially benefit from the future lower rate would need to qualify for a conventional mortgage.

What would I do if I were considering a refinance?

  1. Contact a qualified mortgage professional who has the ability to float down or renegotiate your rate should they dramatically drop after your rate is locked.

  2. Consider pricing the mortgage as a no-cost refinance so that should rates drop low enough, you can refinance again should it be justified.   

  3. Have a plan.  Review your goals with your mortgage professional to make sure refinance makes sense.  If you're not planning on retaining your mortgage long enough to break even, it may not make sense to proceed with a refi.  Focusing just on the rate and not factoring in closing costs and break-even periods can be costly.

  4. Get ready.  Apply early so you're in the best position to lock.  If today's current rates do not pencil out, determine what rate will.  Some mortgage professionals will agree to a "forward lock" in the event your target rate (or better) becomes available.

If a refi boom happens, be prepared for the transaction to take longer.  Fact is, there are now fewer people in this industry from Loan Originators, Processors, Underwriters and Escrow Officers to handle the increased volumes. 

Questions?  I'm licensed to provide mortgage in Washington State.  Contact me.

Related posts:

Get Ready, Get Set: Refi!

Declining Home Values: Good for Buyers, Bad for Refi's

Why Your Loan Originator Needs a Complete Loan Application Before Locking

Filed Under: Refinance

Rates on Bank Websites

October 23, 2008 by Leave a Comment
I received this email from a client yesterday.  Since it’s a common question, I thought I’d share it with you:
“I just noticed on the [big bank’s] website that the conforming mortgage rate with 1 point is now 5.75.
Do you know what type of rate it would be for conforming jumbo without paying a point?
How much do you anticipate my closing costs will be if I decide to refinance?   I know [big bank] has a new program now where they pay for all closing costs besides interim interest and taxes when you refinance.   Do you know if any other banks offer the same program?”
Filed Under: Interest Rates, Refinance Tagged With: , ,

Declining Home Values: Good for Buyers – Bad for Refi’s

September 16, 2008 by Leave a Comment

Last Wednesday’s Seattle PI featured a front page article by Aubrey Cohen: Home values drop by double digits.   According to data by the NWMLS, the median sales price for houses in August 2008 for Seattle was $464,800; a 7.8% drop from July 2008 of $428,500 and 14.5% drop when compared to the median sales price from August 2007 of $501,000.   King County also dealing with a double digit drop.   The median sales price for houses in King County in August 2008 was $423,950; a 4.7% drop in one month with July 2008 at $445,000 and a 11.2% drop compared to August 2007 at $447,345.

If you’re a home buyer in this market, you’re in the drivers seat…and sitting pretty at that.  Listings are up 18.3% in King County (condos and houses) as compared to August of 2007; giving you plenty of choices.  Sellers are more likely to contribute towards your closing costs and prices are more attractive than recent years.

What if you all ready own a home and you’re considering refinancing?  Even though your home is your castle, the appraiser must use 3 recent sales (over the last 6 months is preferred) of homes similar to yours to come up with an appraised value.  This can be a little tricky with fewer sales AND lower sales prices.   Using the King County figures above and rates I’ve quoted at Mortgage Porter, this is how a refinance could be impacted:

Joe and Suzy purchased their home in King County for $447,345 in August 2007 utilizing a 30 year fixed mortgage at 6.625% with a loan amount of $357,900 (20% down payment).  They are now interested in taking advantage of our lower rates and decide to refinance since rates are close to a full 1% lower with zero points and they’re going to stay in their home for at least the next five years.   They have not paid additional towards their principal and their current balance is now around $354,250 with a principal and interest payment of $2,291.67.

An appraisal reveals that their home, based on what others like theirs have recently sold for, is now worth $423,950.  The best priced rate/term refinance (assuming perfect credit) is an 80% loan to value.  80% of $423,950 is $339,160.  If Joe and Suzy want to drop their rate by one point, they would need to bring in $15,000, not including closing costs if they want to avoid private mortgage insurance.  (Second mortgages are now pretty tough to come by these days).

Joe and Suzy’s home may be worth more than average.  Loan originators do not know what the value will be until we receive the appraisal.  I do have some resources available (such as researching comps via the title company) however, it’s just a rough idea.  Be wary of any loan originator who promises you that your home value will be perfect for a refinance.

Joe and Suzy’s options (if they want to refi) are:

  1. Bring in $15,000 plus closing costs (approx. $2600) to closing to pay down principal to 80% of present value.  Principal and interest payment = $2,033.44 – based on 30 yr at 6.00% at 0 pts (apr 6.063).   A savings of $258 per month, at a cost of $17,600, Joe and Suzy really need to decide if this is the best use of their money.  Based on their monthly savings, they’ll break even in approx. 5 and a half years.   
  2. Private mortgage insurance.  Paying off the entire mortgage balance plus closing costs provides a loan to value of approx. 85%.  Principal, interest and mortgage insurance based on 5.875% at 0.75% pts (apr 6.005) = 2,227.70.  This is a monthly savings of $63.97.  Suzy and Joe do not have to bring in $15,000 to pay down their principal, however it will take almost 7 years to break even on the cost of this refinance. 
  3. Rates with LPMI (lender paid mortgage insurance) are not competitive for this scenario. 
  4. FHA has monthly and upfront mortgage insurance.  Unless their motivations are other than reducing their rate, this is not a valid option for this scenario.

Even if our local market has hit bottom, appraised values will be impacted for several months until home values begin to appreciate.   Appraised values are a reflection of what has sold in the past.  Appraised values may continue to trend lower for refinances. 

Glenn Crellin, director of Washington Center for Real Estate Research at Washington State University states (from Aubrey Cohen’s article) regarding the recent drop in rates from the Fannie/Freddie takeover his expectation is:

"those decline in rates are going to be relatively short term." 

And to those who are trying to get the "bottom" of the market for home prices, he says it’s "nearly impossible".  Let’s face it, we really won’t know where the bottom is until prices are heading back up.

If you are considering refinancing, I do recommend that you contact your mortgage professional soon and "be real" about your home value.  I don’t encourage waiting with median sales price declines at 4.7 (King County) to 7.8 (Seattle) per month as it’s eating away at your equity and refi options. 

If you are considering buying a home, proceed with getting preapproved so you’re ready to make an offer should you find the home you’re looking for.

Related Post:

When Appraisals Come in Low for a Refi

Filed Under: Appraisals, Economy, Refinance, Residential Purchase, Seattle
« Previous Page
Next Page »