FHA Streamline Refinances: HUD Reduces Monthly Mortgage Insurance!

Millions of FHA borrowers could save average of $3,000 a year

WASHINGTON – Today, Acting Federal Housing (FHA) Commissioner Carol Galante announced significant price cuts to FHA’s Streamline Refinance Program that could benefit millions of borrowers whose mortgages are currently insured by FHA.   Beginning June 11, 2012, FHA will lower its Upfront Mortgage Insurance Premium (UFMIP) to just .01 percent and reduce its annual premium to .55 percent for certain FHA borrowers.

To qualify, borrowers must be current on their existing FHA-insured mortgages which were endorsed on or before May 31, 2009.

This is big news! Many Sonoma County homeowners have been unable to refinance their FHA Mortgages because the mortgage insurance premiums have actually risen several times since May of 2009. As it presently stands, the monthly mortgage insurance is 125% of the loan amount for all loans taken out after May 2009.

How Hud’s reduced monthly mortgage insurance helps homeowners complete FHA Streamline Refinances

Let’s take a look at that $300,000 loan amount one more time. Based on the new on the new streamline insurance premiums, that monthly mortgage insurance is now$137.50 per month. The additional $175 per month savings is the benefit a current homeowner would receive for participating in HUD’s  FHA Streamline Program.

The net tangible benefit for refinancing previously was eroded by the higher mortgage insurance premiums despite the lower interest rates. So in other words, the monthly savings a borrower would receive by reducing their interest rate was offset by higher monthly mortgage insurance premiums. HUD recognized reducing mortgage insurance premiums for homeowners looking to refinance, made sense, FHA Commissioner Carol Galante offered the following:

“This is one way that FHA can make a real difference to help homeowners who are doing the right thing, paying their bills on time and want to take advantage of today’s low interest rates,” said Galante.  “By significantly reducing costs for these borrowers, we can make certain they cut their monthly mortgage burden which will benefit the housing market and the broader economy in the process.”

To determine your eligibility for a new FHA Streamline Refinance,  following has to be met:

  • Current first mortgage loan must be insured by the Federal Housing Administration (non FHA loans are ineligible)
  • Loan cannot have been taken out after May 31, 2009
  • Previous loan a purchase or a refinance does not matter
  • No income verification required
  • No property appraisal required
  • Closing costs must be paid separately from the loan, in other words they cannot be financed
  • Middle credit score must be 640 or higher

Q & A on FHA Streamline Refinances and the new lower mortgage insurance premiums

Q: How does an FHA Streamline Refinance work?

A: An FHA Streamline Refinance allows you to refinance a current FHA Mortgage. The property has to be owner occupied with one exception

* If you originally purchased the property as an owner occupied residence and later moved, and it’s now an investment property, you are still eligible for an FHA Streamline Refinance, despite the new occupancy.”

The FHA Streamline Refinance requires no income verification and no appraisal. The program allows you to refinance so long as their loan net tangible benefit – payment reduction.

If you’re looking to reduce your loan term as in going from a 30 year fixed to a 15 year fixed for example, you need to do a full FHA Refinance, which includes a home appraisal. The FHA Streamline Refinance  option is more attractive in our local Sonoma County market, because underwater mortgages, are still eligible for this program.

Additionally, you likely paid upwards of 1.75% in upfront mortgage insurance premium when you took FHA loan to begin with. Your upfront mortgage insurance premium refund amount decreases incrementally in each month after securing an FHA loan.

For example if you took out your loan in May of 2009 and you paid $5000 in upfront mortgage insurance premium, you would be eligible for only 36% of that $5000, so in other words $1800 would be a refunded and applied to your new principal balance loan amount. This is known as the financed loan amount.

Lastly, three other important considerations to be mindful of:

  • You will have to front your new impound account for taxes and insurance when you take out a new FHA Streamline Refinance. Upon two weeks after closing escrow, you will receive whatever surplus funds was in your previous impound account with the old lender you just paid off, making the funds to set up a new escrow account, a wash.
  • Closing the new FHA Streamline Refinance at the end of the month is beneficial to you as a homeowner because of the fact that HUD charges you for a full month’s worth of interest whether you use the mortgage for the full 30 days or not.  Closing at the end of the month actually, guarantees you are not paying more money to your current mortgage lender then what is absolutely necessary.
  • Any cash to close escrow is easily mitigated by bringing in your next month mortgage payment into escrow. Let’s say you are poised to close your new FHA Refi at the end of June, you simply bringing your July mortgage payment that you otherwise would’ve made to the lender into escrow a few days early. Doing so mitigates the cash to close and does not disturb your monthly cash flow to come up with the closing costs.

Q: You mentioned only receiving certain portion of my initial upfront mortgage insurance premium (UFMIP) refunded back to me how does this work?

A: When you refinance, you will receive a percentage of your original upfront mortgage insurance premium if you refinance within the first 36 months. Meaning refinancing beyond three years there is no refund on your upfront mortgage insurance premium. That is the cost of the money HUD charges for allowing you to use an FHA Loan to finance your property.

Use these following numbers as a general guideline or contact a local mortgage lender.  BTW we know a great one :).

Immediately post closing

Month One 80% refund

Month Two 75% refund

Month Three 70% refund

Every month until month 36, the upfront mortgage insurance premium goes down by increments of approximately 5%. To get the best approximation of unearned UFMIP amount, you’ll want to contact a lender who is approved to originate FHA Mortgages.

Q: I took out my FHA mortgage in 2010, can I refinance my mortgage with an FHA Streamline Refinance?

A: Yes, you can, however you will be subject to today’s current mortgage insurance premiums , 1.75% upfront mortgage insurance as well as 1.25% monthly mortgage insurance premium.  This means there needs to be a large spread between your current mortgage rate and the rate you are getting on your new refinance.

If you presently have an FHA Mortgage that you took out on or before May 21, 2009, you should definitely look into an FHA Streamline Refinance. The lower mortgage insurance premiums will allow you to save a considerable amount of money. If refinancing for a whole new 30 years, is not all that appealing, make the same payment on the new loan, that you’re making on the present loan and you’ll pay off the new loan faster without starting over at 360 months.

Get your FHA streamline rate quote today, it’s no obligation and free of charge. Start benefit now on FHA Streamline Refinances with lower mortgage insurance!




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