FHA Streamlines Just Got Easier

If you are an FHA borrower anywhere in the United States that has an FHA loan that was endorsed before May 31st of 2009 this update is just what you have been waiting for for 3 plus years!!  Two things were very different back when you closed your FHA loan that may have caused you to put up a dart board in your garage with “HUD/FHA” painted right over the bulls eye!    – New FHA rules

1. FHA mortgage rates were much higher than they are today
2. FHA mortgage insurance rates were much lower than what they are today

Since 2009, Arizona FHA mortgage rates have dropped drastically.   Many FHA homeowners in the Phoenix market and around the country (those that want to save money) have likely attempted to apply for the world’s easiest refinance program (aka  –  The “FHA Streamline“) and been turned down.  Why?  It’s all a matter of some funky yet costly math and politics.  In short, as mortgage interest rates decreased FHA simultaneously started increasing what they are charging an FHA borrower for mortgage insurance.  As a result, the challenge has been that an FHA borrower that closed on their FHA mortgage could lower their rate however the escalating mortgage insurance costs either offset or totally wiped out what that borrower could have saved due to the drop in their interest rate on an FHA streamline.  Lets take a look at an example.

Example of FHA Streamline Challenge that is Gone! 

Bob and Sue FHA-buyer bought a home and closed on May 1, 2009.  Here are the details surrounding their purchase:

Purchase Price: $300,000
Loan Amount: $293,842 (after down payment AND mortgage insurance premium add back)
Interest Rate: 5%

Monthly Payment Breakdown:
Monthly Principal and Interest: $1,577
Taxes: $150
Homeowner’s Insurance: $55
FHA Monthly Mortgage Insurance: $132
Total:  $1,914

Fast forward to 2011.  Bob and Sue FHA-buyer got excited when they saw that FHA mortgage rates dropped to 3.875% and they wanted to take advantage of an FHA streamline refi to lower their monthly payment.    Here is what their new payment would have looked like after a streamline refinance in 2012 at 3.875%.

Monthly Payment Breakdown:
Monthly Principal and Interest: $1,382
Taxes: $150
Homeowner’s Insurance: $55
FHA Monthly Mortgage Insurance: $302
Total:  $1,888

While Bob and Sue FHA-buyer’s principal and interest payment dropped by $195, their monthly mortgage insurance payment increased at the same time by $170.  The net result was a mere $26 in monthly savings.  Besides the fact that noone would go through a refi to save $26 per month, FHA does not allow an FHA borrower to do a FHA streamline if they do not reduce their principal and interest + monthly mortgage insurance payment by 5% as a result of the streamline.

Long story short – Bob and Sue FHA-buyer were stuck because HUD and FHA had no desire to create a special grandfather clause allowing FHA buyers that originally closed at a lower mortgage insurance rate to refi at that same lower mortgage insurance rate they received when they first closed.  That my friends has FINALLY changed!

New FHA Rules Save FHA Homeowners Big Time 

FHA finally woke up and smelled the “do the right thing” flavored coffee that was brewing for years under their noses!   A new rule was issued that states that an FHA homeowner that had an FHA loan endorsed on or before May 31, 2009 can do an FHA streamline refinance and have the benefit of only being charged the same low mortgage insurance rate they received when they closed on their original loan – .55% per year (current insurance rate is 1.25% per year).  This is a huge development.  It means that homeowners like Bob and Sue FHA-buyer can now finally leverage today’s low FHA mortgage rates and save money!

In fact, if you go back to the example above, Joe and Sue FHA-buyer will now save the full $195 per month rather than the measly $26 based on the fact that FHA is allowing them to revert to the older lower monthly mortgage insurance costs.   Great time to jump on the FHA streamline bandwagon.

The other major benefit is that HUD/FHA is only charging .01% (basically $0) on their up front insurance premium for FHA homeowners that have an FHA loan that was endorsed on or before May 31, 2009.  That too is a HUGE reduction from FHA’s current up fron insurance premium factor of 1.75%.

Call me or email me today so that I can help you review what your streamline options are. You can also APPLY NOW.

Benefits of an FHA Streamline 

An FHA Streamline is designed to help an existing FHA homeowner (someone who already has an FHA loan on their home) lower their interest rate and overall monthly mortgage payment.  As the title suggests it is a streamlined refinance program offering the following “perks” that a traditional refi does not:

1. No appraisal required (huge plus in today’s market)
2. No income verification required

An FHA homeowner must not have more than 1 30 day late payment in the past 12 months and they must have a 640 credit score to qualify.

By Jeremy House