Update 4/27: We are now taking full applications for the Streamline FHA refinance program, with the lower Mortgage Insurance costs. Get a Free Rate quote.
The good news if you have a current FHA loan in Georgia is that you will be able to refinance your loan to a lower rate with very simple qualifications and without the need for an appraisal.
The bad news is that the cost of Mortgage Insurance has more than doubled, and it is going up yet again come the first of April, 2012. It will be 1.25% of the loan amount per year; up from .55% of the loan amount that most FHA holders are currently paying. That is hard to make up for in a rate drop.
So, good things come to those who wait. And for new FHA refinances registered after June 11, 2012, the really good news is that your Mortgage Insurance will drop again to what you are paying now – .55% per year. So any drop in interest rate will be an immediate savings, as all else about the loan will remain the same.
What’s the catch? As with all things lending these days, there is a catch.
- Your payments must be on time for the past 12 months.
- You need a credit score of 620 or above.
- Your FHA loan must have been taken out prior to June 1, 2009. That’s the big one!
- And you must be saving at least 5% in payment.
That last one isn’t really a catch so much as common sense, though.
So if you are looking at rates being so low and wishing you could participate in them, but wondering how, since in many cases FHA homeowners may be under water and wondering how to refinance with no equity. Well, this is your answer, an FHA Streamline Refinance.
And, there is one more catch: if you do not get an appraisal when you apply for an FHA streamline Refinance loan, then you cannot roll closing costs into the new loan.
Here is what I recommend: Either plan to pay closing costs (but no points and no origination fee) out of pocket; or let’s just increase the rate by about .25% from the going rate, and I, the lender, will pay your closing costs for you.
Most borrowers doing the Streamline FHA loan opt for the latter, that the lender pay closing costs. They save money immediately, and don’t add anything to the balance of their loan. Everybody wins.
You may, however, want to bring the money to set up a new escrow account for taxes and insurance. You see, if you have and FHA loan, then you by default have an escrow account so that when property taxes and homeowner’s insurance come due each year, your mortgage company pays those fees out of what you paid in every month.
So, when you refinance using the Streamline FHA refinance program, you will skip a month’s payment. Say we close at the end of June. You will not have a July payment due. Your next mortgage payment will be due August 1. And during that time from closing to your next, lower, payment, you should expect a check in the mailbox for the refund of what is in your current escrow account.
It is sort of floating the money for the escrows for a month, then getting the refund of the existing escrow account. That will help keep your interest rate lower if you set up the escrow funds for the new mortgage, and the lender can pay your closing costs.
At this point you will probably be well served to wait and make application for the FHA streamline refinance toward the first of June, and make sure the we, the lender, not set up the ‘case number’ or register the loan with HUD until June 11, 2012. That will cut your mortgage insurance by more than half.
As always, feel free to call me at 1-800-MY-LOANS (1-800-695-6267). Or, just fill out this form for a custom (and FREE) rate quote.
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