FHA Streamline With a 2nd Mortgage

FHA Streamline With a 2nd Mortgage

FHA homeowners are a fortunate group.  Why?  They have access to an outstanding HUD refinance program that dramatically simplifies the process of lowering their mortgage interest rate and monthly mortgage payment.  The amazing program they have at their disposal is called an “FHA Streamline Refinance.”  Streamline refis eliminate the need to verify a homeowner’s income and more importantly – no appraisal is required!

In this market when home values and income levels have both fallen in many cases, an FHA streamline refinance is a perfect tool that can help those that have an existing FHA home loan reduce their mortgage costs.  Pre-2005, many Arizona homeowners that saw their home values increase significantly took out a 2nd mortgage in addition to the FHA mortgage they already had on their home.  2nd mortgages were used to pay off debt, fund college educations and much much more.  Now that mortgage rates and real estate values have dropped, FHA homeowners that have an FHA 1st lien along with a 2nd lien are looking to find a way to take advantage of the amazing low Phoenix mortgage rates that an FHA streamline offers.

One of the FHA streamline rules that impacts a homeowner’s ability to complete an FHA streamline when there is a 2nd lien present states that an FHA streamline refi may only be used to pay off an existing FHA loan.  As such, an FHA streamline does NOT allow a homeowner to wrap their 2nd lien into their new streamlined FHA home loan.  Additionally, if a homeowner is upside down (they owe more on their mortgage than their home is worth) when they compare their home’s value to the aggregate balance  of their 2 mortgages is that a traditional refinance is not possible due to a lack of equity.

Have a 2nd Mortgage, No Equity and an FHA Home  Loan?

FHA streamlines offer a solution even to those that have 2 loans!  While 2nd liens cannot be paid off with an FHA streamline, they don’t have to keep a homeowner from lowering their interest rate and payment on their 1st lien FHA mortgage.  Here is how it works:

The key with streamlining/refinancing an AZ FHA loan that has a 2nd lien behind it is making sure the 2nd lien holder agrees to stay in 2nd lien position after the refinance.  This gets a bit technical but let’s dive into why this has to happen.  When there are 2 mortgages on a property each of those mortgages has the right to receive payment from the proceeds from a forced sale of the property in the event that the homeowner is foreclosed upon.  Now imagine there are 2 mortgages.  Who gets money first in the event of foreclosure?  Its simple – the lender who is legally in 1st lien position.  A 2nd lien holder would get money only after the first lien has been satisfied.  This is why lien position is SO important in the mortgage world.

Now let’s apply this logic to an FHA streamline with a 2nd mortgage.  FHA is VERY interested in ensuring they are in first lien position after a streamline refi.  Here again is where this process gets a bit technical. When an old FHA 1st lien is paid off by a new FHA streamline refi, the existing 2nd lien automatically moves into 1st lien position.  In order to succesfully complete a streamline refi when there is a 2nd lien the 2nd lien holder must agree to go into back into 2nd lien position (not move into 1st) behind the new streamlined FHA loan.  This process is called a re-subordination.

FHA Streamline Refi with a 2nd Mortgage/HELOC

The new lender that is originating the homeowner’s streamline refinance will help the homeowner request a re-subordination from their existing 2nd lien holder.  This process is different for each and every 2nd lien holder.  It is the new streamline lender’s responsibility to help the homeowner find out what their individual re-subordination process looks like.  Once the 2nd lien holder agrees to re-subordinate it’s business as usual.  The new lender can move forward and help the homeowner start saving money by lowering the interest rate on their first lien FHA mortgage with a streamline refi!

Please call or email me today to let me know how I can help you start saving now with an FHA streamline.

Jeremy

 

Comments

  1. Jeremy,

    My wife and me attempted a FHA Streamline Refi ~18 months ago. We were told then that we could not (after 6 months of waiting) because our second mortgage had a balloon payment less than 10 years. An option would be to get the second mortgage company to extend the term. The second mortgage company said they couldn’t since they didn’t originate the loan (sold twice).

    I’ve searched, and searched for FHA Streamline Refi requirements…NOWHERE have I found where balloon payment terms were to be factored in.

    Do you have different information? I’m trying desperately to take advantage of these low rates and save money (currently at 5.375 on first, 6.5 on second).

    We are always on time with our payments (bi-monthly auto payments from checking) and last refi in ~Jan 2010

    Andy

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