FHA Streamline Refinancing
FHA Financing has become more popular again due to the tightening of lending standards, & the evaporation of the subprime lending market. One of the benefits of obtaining an FHA loan is the ability to reduce your interest rate at a later date at relatively low cost, if market rates improve after you get your initial FHA loan. Although some new restrictions are on the horizon, a streamline refinance is still a wonderful tool to help lower your monthly mortgage payments. If you have an existing FHA loan, & are current, & you believe your interest rate is at least a half percentage point higher than the current market rate, then a Streamline Refi may be a good deal for you. Streamline refi's can be done relatively quickly, & with a lot less paperwork than getting a normal fully documented loan. The spirit of the FHA Streamline is to allow borrowers to improve their finances. You can Streamline refinance & change the term to a shorter or longer term, pay a lump sum to reduce your outstanding balance & reduce payments at the same time, or you can simply lower your rate & payment. Just like any other loan, it does not work for everybody, so you will need to consult with a mortgage professional to determine if this would be the best loan type for you.
Closing costs for an FHA streamline refinance can vary from lender to lender, & may be different for loans of different sizes. Just like any new first mortgage obtained, there are certain fees that must be paid. Here is a listing of the more common items you should expect to see:
Title Insurance. There will be a need for a new title policy to be issued, because you'd be getting a new loan, & title must be proven to be clear of liens & judgments. Title insurance is usually based on a percentage of the loan amount, plus service fees for administrative items in association with providing the coverage.
Recording fee. The new loan/mortgage must be recorded, & the old loan/mortgage extinguished. This cost will vary according to local policies in your area.
Escrows/Reserves. A new escrow account for paying taxes & homeowners insurance will need to be established. Often the cost of this may be offset in part or entirely by applying the balance of the current escrow account.
Taxes/Insurance. Any impending insurance renewal or property taxes due may be required to be paid.
Up front Mortgage Insurance, (UFMIP) FHA loans have a mortgage insurance premium that is typically financed into the loan, & there is a pro-rated refund of any existing unearned UFMIP that can be applied to the closing costs. This is typically 1.5 - 1.75% of the new loan amount.
Lender fees: These may vary depending on how your originator is setting up your loan. Application fees, commitment fees, & other small pass through fees may be charged.
Discount points. Discount points can be charged to further reduce the interest rate below the current market rate.
YIELD SPREAD PREMIUM: YSP is a tool that can be used to reduce a borrowers cost of obtaining a loan. In exchange for a borrower accepting a slightly higher interest rate, YSP may be available to be used to offset a borrowers closing costs, & is typically seen as a "lender credit". YSP is also referred to as a 'rebate'.
A typical Streamline refinance transaction results in a borrower bringing anywhere from zero $$$ to about one monthly payment to closing. Normally there is no payment due right away, so bringing this payment to closing is essentially the same as paying your normal monthly payment. There is no limit to the amount of times a borrower can utilize the streamline refi feature of FHA financing. There is often no credit qualifying, no appraisal, & no debt ratios calculated. You must be current on the existing FHA loan. Streamline refinances are relatively inexpensive, & easy to get through the process.
If you currently have an FHA loan, & you are interested in a lower rate, see if your mortgage professional can help you put more money in your pocket each month! There's no risk, & there can only be a good outcome!