No Cost FHA VA Streamlines – AZ

No Cost VA/FHA Streamline Refinance

“No such thing as a free lunch” definitely applies to this topic.   Homeowners are constantly bombarded with flyers and postcards with promises of a no-cost FHA / VA Streamline Refinance from various Arizona Mortgage Lenders. The goal of these simplified ads is to hook the FHA/VA homeowner with an almost too good to be true sounding offer.  While there is a very effective way to keep FHA/VA homeowners from having to pay the costs associated with an FHA/VA streamline refi it’s only fair to make sure “streamliners” understand how the no-cost scenario works so that they know what their options are.

While the most logical and financially sound FHA/VA streamline option is often the one where the homeowner’s AZ Mortgage Company pays their closing costs, let’s break down what the different streamline choices look like.  First, we need to outline the typical costs associated with a streamline.  After all, no title company and no mortgage lender is going to work for free.

Typical FHA/VA Streamline Fees
There are three categories of fees involved in an AZ FHA/VA streamline refinance (the below are only estimates):

Lender Fees: + or – $950 depending on lender
Title Fees: $600 to $1,000 depending on the loan amount and the title company
Pre-Paid Taxes and Insurance: $250 to $1500+ depending on property tax and insurance costs and depending on what time of year the loan closes

Each of these charges needs to be paid one way or another on every streamline refinance.  This is where the “secret” behind the only half-true “no cost streamline refi” sales pitch is revealed.  The truth is that there are two options relative to who can pay these costs:

OPTION 1: The homeowner can pay
OPTION 2: The homeowner’s AZ lender can pay (however not by rolling them into the loan amount on FHA streamlines – VA does allow certain costs to be rolled in)

Option 1 is an easy one to figure out.   Option #2 is where many Phoenix area mortgage lenders fail to go the extra mile to explain to the homeowner exactly how it works.  In short, the way a lender generates additional funds to pay for the homeowner’s streamline closing costs is by increasing the homeowners mortgage interest rate above where the current market rate is for a streamline.

By increasing the homeowners rate by .25% to .375% an Arizona FHA or VA mortgage lender can typically generate enough additional revenue to pay for the buyer’s closing costs.  The exact amount the lender needs to increase the rate depends upon the homeowner’s loan amount and how an FHA or VA streamline refinance product is priced out on the day the lender locks in the homeowner’s interest rate.

The bottom line is that every Phoenix area homeowner that is looking to complete an FHA or VA streamline refinance needs to evaluate what option makes the most sense for them financially.  Does a lower rate, lower payment and more money out-of-pocket make more sense than a slightly higher rate, slightly higher payment and less money out-of-pocket.  Typically, the best option is to have the mortgage lender pay for the homeowner’s closing costs given the fact that the increase to rate and payment is typically minimal.  However, the homeowner deserves to understand all of their options and play a role in figuring out what option is best.

If you are looking into your FHA or VA streamline refinance options please give us a call or send an email.  We would be happy to help.

By Jeremy House

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