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FHA Streamline Refinance – What's the Catch?

FHA streamline refinance catchI know that sometimes FHA home loans get a bad rap because of the mortgage insurance premium, but there are benefits that go far beyond that of simply being easier to qualify.

FHA home loans have a built in benefit of allowing you to reduce the interest without having to go through the expense and paperwork of the entire home loan process again.

I know, I know…I’m usually the first one to call B.S. when something sounds too good to be true – so I want to make sure I emphasize that it is a much easier process, but of course there is still a little bit of paperwork.

What’s the Catch?

That’s just it – there really isn’t one.  There are a couple of things you should be aware of though.

No Cost Streamline – There are minimal costs to doing a FHA streamline refinance that the lender will pay for.  The way the lender pays for these fees is by offering you an interest rate sufficient to “cover the cost“.

Example:  If you currently have a 5% interest rate, a lender may be able to offer you a “no cost streamline” at 4%.  That’s pretty good right?  Should save you a ton over the long haul.  The reality of this scenario is that if you were to come in with the reduced fees associated with a streamline, you may be able to push that interest rate down under 4%.  Pretty cool huh?

What you can expect with a FHA streamline refinance

Paperwork: Different lenders may or may not require all of this paperwork.  As a direct lender offering this program, here is what we ask for from the home owner

  • Disclosures – Credit authorization and signed 4506T
  • Current/Complete Bank statements verifying ability to cover costs to close (if there are any costs)
  • Loan Application – This is the same application you completed last time you applied for a loan
  • Mortgage payment coupon/statement – Your most recent mortgage statement
  • Homeowner’s insurance declaration page or agent’s contact information
  • Copy of Driver’s and Social Security card
  • Copy of Recorded Deed (we can get this from the title company if you can’t find it)
  • Copy of the BMCD 1 closing statement from Purchase/last refi – You cannot have modified the loan since last finance.

I know that seems like a hefty list, but it’s really not.  Most importantly is what you DO NOT have with a FHA streamline refinance…..No Appraisal!  Yay 🙂

I am sure there are many lenders out there bombarding you with refinancing opportunities, it’s annoying – I totally get that.  Just don’t let that discourage you from looking into this option if you have a lender you can trust.

If you’re in California, I’m happy to run the numbers to see if you can save a few bucks.  If you’re outside California, drop me a quick comment below and I may be able to recommend someone I trust.

The bottom line on this is that there’s no cost to explore this opportunity and if you cannot realize at least a 5% improvement in payment, FHA will not allow you to refinance.  Win/Win.

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23 Responses to FHA Streamline Refinance – What's the Catch?

  1. Johanna May 24, 2012 at 11:43 am #

    Hi [Broadview],

    We currently have a loan through CalHFA with a subordinate second that is now underwater. We have been told that CalHFA will not work to refinance in anyway. Do you know anything about the HFA working with CalHFA to offer the streamlined refinance? We bought our home in 2008 at a rate around 5.25.

    • Legacy Content May 24, 2012 at 11:51 am #

      CalHFA does consider subordination if there is currently a hardship. It’s been much more difficult in the past, but it seems that they are trying to be more lenient recently.

      Examples of hardships are reduction in income or reduction of savings. Can you make a case for either of these?

      It’s not going to be simple and it’s not impossible either. If you would like a second opinion, shoot me an email to katella@broadviewhome loan.com with the best time and number to reach you.

      We are a direct lender with CalHFA and work with them quite often.

  2. Steve May 1, 2012 at 7:15 pm #

    Hi [Broadview],
    Is streamlining possible with a CalSTRS 80/17/3 loan? We’re only about 2 1/4 years in and owe about $242k on the first, w/50k as our silent 2nd. Our rate is 5.25%. One of the reasons we went w/this program is because we really don’t want to pay PMI. Is it possible to just streamline our first home loan and would it even be worth it? (Thanks for all of the great info. you put out there, by the way.)

    • Legacy Content May 1, 2012 at 7:38 pm #

      Hi Steve,
      This is one of the most difficult challenges I’ve been trying to solve over the past year. I have been told that if you go to a Bank of America branch, that they have the ability to subordinate the second home loan and lower the rate on the first. I am yet to hear back that this has actually ever occurred. I received an email from one of my past teachers clients today that told me that a lender out of Arizona was able to do this. I called the company and the loan officer that they worked with no longer works there. I left a message with the VP of sales and will follow up with him tomorrow. I am actively looking for a solution. For now, I don’t have a quick and easy answer, but I do have leads. I will let you know what I find out!

  3. Michaelle May 1, 2012 at 8:17 am #

    I currently have an FHA home loan, closed in March of 2010. Current rate is 5%. If I chose to streamline, what is the current MIP rate? Would it be advantageous for me to consider refinancing?

    • Legacy Content May 1, 2012 at 10:07 am #

      Hi Michaelle,
      The current MIP rates are 1.25, you probably have .90 now – if you’re at 5% now, I would definitely like to look at the numbers. You can probably drop that rate by 1% today. I am going to ask a loan officer to shoot you an email with what we would need to run the numbers if you’re interested.

  4. Michelle Tsutsui April 17, 2012 at 3:38 pm #

    I would like to learn more about streamline refinancing for a rental property we own. Current loan is a 15 year Freddie Mac @ 8.75% which closed on 6/3/09. Please contact me for more details and to let me know if you can help us get an interest rate below 4% at 15 years. Thank you.

  5. Michael Taylor February 14, 2012 at 6:38 am #

    Yes the rates are down, however the MIP for FHA is way up and may not be tax deductible soon!!! You need to consider this before refinancing!!!

    • Legacy Content February 14, 2012 at 11:51 am #

      You’re absolutely right Michael that home loan insurance premiums have increased. This makes it difficult to show the benefit required by FHA to allow a streamline to happen in many cases. This is really all about the numbers. Mortgage insurance is temporary, you have to keep if for a minimum of 5 years, then it can be removed once you earn enough equity to bring your principle balance to 80% or below.

      In today’s market, I would say the 10 years is the magic number to look at. If you intend to stay in the home for 10+ years, a 1% reduction in your interest rate could result in 10’s of thousands of dollars in savings over a longer term.

      It’s important to consider this when you’re looking into refinancing, not only with streamline financing, but with any refinancing

      Thank you for your contribution to the conversation Michael, your input is very helpful and your concerns are absolutely valid!

  6. Ann February 7, 2012 at 9:24 pm #

    I have been reading about the streamline process. I have received lots of mail offers to lower interest rates. What advise do you have to help choose the right company to do a streamline. I bought my house less than 1 year ago at 5.% interest.

    Thank you

    • Legacy Content February 7, 2012 at 9:34 pm #

      Hi Ann, if you’re in Golden State, we are a direct lener and we can run the analysis for you to determine if you can benefit. It sounds like you’re right on the cusp. FHA requires that you have at least a 5% reduction of payment to qualify for the streamline. There’s no cost to look into it.

      If you’re not in Golden State, you just need to work with a lender that’s FHA approved. Ignore anything that the junk mail says in regards to savings and numbers, it’s just junk mail designed to get you to call. The actual rate and savings will be determined once the lender looks at your situation.

      Again, if you’re not in Golden State, I could recommend someone to you that I trust. If you like, shoot me an email at [Broadview]S@BroadviewMortgage.com and we’ll just go from there.

      Hope this helps

  7. Charlotte Moore January 31, 2012 at 9:35 am #

    [Broadview],
    I don’t know what you mean by
    “Disclosures – Credit authorization and signed 4506T”
    I’ve purchased a house July 2010 in Spring Valley, CA. Values in this area have gone down since then. My FHA loan is approx 4.85% Is this enough info for you to say I should go ahead and try out the FHA refinance?
    Thanks

    • Legacy Content January 31, 2012 at 10:28 am #

      Hi Charlotte,
      Disclosures are just the basic documents that give us permission to look at your credit and verify your income – They are basically papers that need to be signed. I would definitely take a look at your loan. We can do a quick analysis of your loan and determine if there is an opportunity to reduce your payments. FHA requires that you have at least a 5% improvement in your payments to allow a streamline refinance. The challenge that you may find is that home loan insurance premiums increased last year, which can sometimes cause challenges in reducing your monthly payment, even though the interest rate can be reduced.

      I will have a loan specialist shoot you an email with their contact information – if you would like, we can look at the numbers (no cost) and determine if there’s an opportunity there for you.

  8. Patrick January 31, 2012 at 9:17 am #

    I am interested in having a no or no more than 1200 or so dollars needed at close on the streamline refinance option. I did a streamline in 2009 and currently have a 4.875 interest rate. we figure we will stay in our home 5-7 years at least. Our credit scores should still be over 720 .

    • Legacy Content January 31, 2012 at 10:37 am #

      Hi Patrick,
      You can definitely dictate how much you would like to bring in to close – there’s actually a really good argument for bringing in a payment or two to drive the rate down as far as you possibly can…as long as the math works out based on you staying in the home for 5-7 years. I’m going to have a loan specialist shoot you an email with their contact information and, if you like, we can at least run some numbers and see if there’s an opportunity to drop that payment per your terms.

  9. Terry Calderone January 31, 2012 at 8:49 am #

    Hello [Broadview],
    I read all of the very interesting emails you send, along with various options available to homeowners. Thank you for this information. I have recently retired, and had worked the finacial end out thinking all would be well. But due to circumstances with our children’s finances, I now find myself supporting 2 home loans, 2 apartments, and schools. I purchased this home 1 year ago and have a good rate, 4.875%, but rates are lower now. I have looked into refinancing, but keep running into problems due to my principle amount owed and the county limit for loans. Can we speak to see if you know of a way to lower our rate, and ultimately the house payment? Could I refi with a streamline process using the current bank the loan is with, or any lender?

    Thanks,
    Terry

    • Legacy Content January 31, 2012 at 10:42 am #

      Hi Terry,
      I am going to have John Evans give you a call. John works with me here at Broadview Mortgage and he’s fantastic! Let’s take a closer look at your situation, if there’s anything that can be done, we can find it 🙂

  10. Maggie Hart January 31, 2012 at 8:27 am #

    Thk u for educating people like me that we don’t known anything @ real state business.

    • Legacy Content January 31, 2012 at 10:43 am #

      You’re very kind Maggie, I’m glad it’s helpful

      • SALLY PADILLA April 17, 2012 at 7:36 am #

        MY LOAN WITH B OF A IS 4.6%. FOR $200,00. MY LOAN PAYMENTS ARE $1500.00 A MONTH. WHY ARE THEY SO HIGH? I HAVE HAD MY LOAN FOR 1 YEAR. IS IT POSSIBLE TO LOWER MY RATES AND MONTHLY PAYMENT.

        • Legacy Content April 17, 2012 at 1:27 pm #

          Hi Sally, I have asked Alissa Alvarez to shoot you an email. There may be an opportunity to reduce your payment. At the very least, we can look at how your payment is calculated and break it down for you so you know exactly why it is what it is.

  11. Ramona January 31, 2012 at 7:47 am #

    I had asked you before about FHA streamlining. I went through BofA exploring, and they told me I would only save like $7 a month on my home loan and the MIP would go up since it’s higher now and it would be like a new loan. I’m at 5.25% right now. Is the MIP increase true on streamlines?

    • Legacy Content January 31, 2012 at 10:47 am #

      Ramona,
      That was indeed the case last time we spoke – rates have come down a bit since then and I think there would be benefit now. Let me have Frank give you a call and let’s take another look.