FHA Streamline Refinance

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In my recent post about the hidden cost of the payroll tax reduction extension, I alluded to the fact that some homeowners are experiencing problems trying to qualify for this program. In order to qualify for an FHA streamline refinance, in general, homeowners must:

  • have an FHA loan and be current on the payments
  • have no late payments in last 12 months
  • the new mortgage payment must be reduced by at least 5%. This 5% requirement includes both the principal and interest payment combined with the monthly mortgage insurance payment.

Over the past several months, I’ve had conversations with homeowners looking to do a streamline refinance but not qualify because of the 5% reduction requirement. Why is this the case when interest rates are at historic lows? Great question. It all comes down to the monthly mortgage insurance payment.

In 2011, the monthly mortgage insurance premium was increased from 0.55% of the loan amount to 1.15% of the loan amount. Look at those numbers closely… the monthly mortgage insurance payment more than doubled with this change on FHA loans.

While historically low interest rates are lowering the monthly mortgage payment, homeowners who bought their home prior to the monthly mortgage insurance payment more than doubling are having their potential savings ruined by this increase. For example…

I recently spoke with a homeowner wanting to use the streamline refinance program. With interest rates in the 3’s, I was able to save him $135 per month. However, his monthly mortgage insurance payment would increase by $100 per month.

In order to qualify for the streamline refinance, his combined payment needed to decrease by $60. With the increase in the monthly mortgage insurance, the net savings would only be $35. This means he would not qualify for a streamline refinance unless he paid down his mortgage by several thousand dollars.

This homeowner can still refinance, but would have to refinance without being able to use the FHA streamline program. With the new 10 basis points being added to the monthly mortgage insurance (increasing it from 1.15% to 1.25%), even more homeowners may no longer qualify for an FHA streamline refinance.

If you currently have an FHA loan and are considering refinancing, now is the time! If your home is in the state of Georgia, I can help you get started with the process. Contact me to get started.

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2 Responses to “FHA Streamline Refinance”

  1. FHA Streamline Refinance loosening guidelines « The Mortgage Blog Says:

    […] Frequent readers of The Mortgage Blog will remember a post from January 2012 describing the difficulty homeowners with FHA loans face when trying to participate in the streamline refinance program. The difficulty stems from the dramatic increases to FHA mortgage insurance since the homeowners original purchase. For the full details, see this link. […]

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