FHA Streamline Refinance just got much, much cheaper (FOR SOME)

HUD has announced a change to the FHA Streamline program that will make refinancing an FHA Mortgage in Pennsylvania and the rest of the country much cheaper for many homeowners. Essentially, HUD is drastically reducing the amount of Mortgage Insurance required for qualified FHA Streamline Refinances.

FHA has always had two types of mortgage insurance on each new FHA transaction. These two types of insurance include an Upfront Mortgage Insurance Premium (UFMIP) that is collected at closing and is typically financed into the new loan amount. The current UFMIP level is 1.75%. HUD has announced that they are reducing this requirement all the way down to .01% for FHA Streamlines.

In addition, there is a monthly FHA Mortgage Insurance Premiums that is collected with each payment. The amount required for monthly insurance has risen from .55% annually to 1.25% annually in just a 3 year period, mainly to offset increased default levels and to maintain the FHA program’s reserve assets. HUD has now announced that they are rolling this premium back to the .55% level for FHA Streamlines.

How do these FHA Mortgage Insurance Premiums affect my FHA Mortgage?

Quite a bit.

On a total loan amount of $150,000, the required monthly mortgage insurance premium at a .55% annual rate breaks out to $68.75 monthly (150,000 x .0055 / 12).

The same loan amount at the current annual mortgage insurance rate of 1.25% equates to $156.25 monthly (150,000 x .0125 / 12). A difference of $87.50 per month.

The UFMIP of 1.75% adds $2625 to a $150,000 loan balance (150,000 x .0175)

The new UFMIP of .01% adds just $15 to a $150,000 loan balance (150,000 x .0001). A difference of $2610 to the loan balance.

Many FHA borrowers have not been able to take advantage of the FHA Streamline Refinance program in the last few years because the higher Mortgage Insurance Premiums were offsetting any reduction in interest rate. These new and substantial reductions in FHA Mortgage Insurance Premiums will allow more FHA borrowers to take advantage of today’s low interest rate market.

Which FHA mortgages qualify for the new lower FHA mortgage insurance premiums?

The new FHA mortgage insurance premiums are avaliable for FHA mortgages that were closed on or before May 31, 2009.

Why this date?

FHA issues prorated refunds for UFMIP. This proration decreases with each month that passes and is completely phased out after an FHA mortgage is 36 months old. By limiting this program to FHA mortgages that are at least 36 months old, the FHA can avoid issuing any mortgage insurance refunds.

I got my FHA Mortgage after May 31, 2009. Will I be eligible for these Mortgage Insurance reductions once my mortgage is 3 years old?

No. So far HUD has only made this program eligible for loans endorsed on or before May 31, 2009 and has not announced any plans to continually adjust this date for 3 year old mortgages.

I do not currently have an FHA mortgage but would like to use this program to pay off mortgage and consolidate some bills. Is this program available for me?

No. The program is only to pay off a current FHA mortgages and can not be used to pay off any other type of mortgage or debt. No cash out is allowed on FHA Streamlines.

What are the appraisal and income requirements?

No appraisal is required with this program and we only have to verify that the borrower is employed, income is not verified.