New FHA Mortgage Refinance Policy Saves Homeowners Money

FHA Mortgage Rates Now Cheap & Accessible

The FHA is making it easier to save money on a refinance mortgage.

Via a new policy, existing FHA homeowners using the FHA Streamline Refinance can now refinance on any day of the month, and close on any day, too. You no longer need to plan to close at month’s end in order to maximize your home loan savings.

The change, which is effective immediately, eliminates a FHA Streamline Refinance program quirk which had led to higher closing costs via “double-interest” payments.

The double payments are no longer required.

For homeowners using the FHA Streamline Refinance to refinance their FHA loans, it’s an excellent time to get started with a loan. FHA mortgage rates are 0.25 percentage points lower than those for a comparable conventional loan; and FHA mortgage insurance premiums (MIP) have been reduced by as much as 50 basis points per year (0.50%).

Have you seen today’s FHA mortgage rates? With the reduction in FHA MIP, the cost of carrying an FHA loan is the lowest that it’s been in history.

 

What Is An FHA Streamline Refinance?

The FHA Streamline Refinance is a special refinance program available to homeowners with FHA-insured mortgages only.

Homeowners with existing VA loans are not eligible for the FHA Streamline Refinance; nor are homeowners with an existing loan backed by Fannie Mae or Freddie Mac.

The FHA Streamline Refinance program is described in the Federal Housing Administration loan guidelines as a reduced-paperwork, verification-free, no-need-for-an-appraisal refinance loan which lowers a homeowner’s monthly mortgage payment by at least 5 percent.

“Mortgage payment” is defined as a homeowner’s principal + interest payment, plus whatever FHA mortgage insurance premiums are due monthly.

For many homeowners, a drop in open-market FHA mortgage rates of just 50 basis points (0.50%) is sufficient to qualify for the FHA Streamline Refinance. Because today’s mortgage rates are so low, there are hundreds of thousands of U.S. homeowners currently eligible to do an FHA Streamline Refinance.

Eligibility requirements are simple:

  1. You must be current on your FHA mortgage
  2. You must have made 6 mortgage payments on your current FHA loan
  3. You must save at least 5% on your mortgage payment

And, that’s it.

No Verification Required For FHA Loans

According to FHA official program guidelines, you do not need to show proof of employment; you do not need to show a minimum credit score; and, you are not required to have your home appraised.

The FHA assumes that, if you’ve been paying your mortgage on-time and you’re going to reduce your payment by five percent or more, it really doesn’t matter if you’re unemployed or if your credit score is low. You’ve paid your mortgage in the past — you’re going to pay it the future, too.

In addition, the FHA Streamline Refinance allows for loan sizes of up to $729,750, which exceeds the today’s FHA loan limits of $625,500. Such high-balance loans are available to borrowers in areas including Loudoun County, Virginia; San Jose, California; and Montgomery County, Maryland; and, makes it easier to save money with jumbo-sized home loans.

Furthermore, the FHA Streamline Refinance can also be used for multi-unit homes as well as for homes which were originally financed via the FHA 203k loan, the agency’s home construction mortgage loan.

 

FHA Eliminates “Double Interest” On Refinancing

The FHA Streamline Refinance requires only minimal paperwork — a signed application and a few supporting pieces of documentation. The limited set is why the program is known as a “streamlined” one.

By contrast, a non-streamlined FHA refinance — such as when a conforming mortgage is refinanced to an FHA one — requires the typical paperwork of a new mortgage loan including W-2 statements, federal tax returns, and a recent credit report.

Because an FHA-to-FHA refinance requires so little paperwork, FHA Streamline Refinance loans can often close in 25 days or fewer. This means you can start saving money sooner.

Especially because the FHA has done away with its “double interest” rule.

The rule, which was eliminated in late-January 2015, had allowed lenders to collect an entire month’s worth of mortgage interest, regardless of your loan’s actual payoff date. To pick the wrong closing date means “double-paying” up to 31 days of interest.

Here’s is how the Double Interest Rule would have worked in real-life.

Assume a homeowner in Seattle, Washington had purchased a home with 3.5% down, and then used the FHA Streamline Refinance program to refinance to a lower mortgage rate. The refinance is scheduled to fund on the 15th of the month.

Because of how the FHA Streamline Refinance rules were originally written, 15 days of per diem interest would have been paid to new lender, to cover the rest of the month; and 30 days of per diem interest would have been paid to old lender, because the FHA allowed the old lender to charge it.

Therefore, the refinancing homeowner would be paying 45 days of interest in a 30-day month, which is a waste of several hundred dollars.

Today, with the new FHA rules in place, the homeowner would pay only the expected 30 days of interest — 15 days to the old lender and 15 days to the new one.

 

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