|HUD reduces monthly mortgage insurance
FHA announces price cuts to encourage streamline refinancing. Millions of FHA borrowers could save average of $3,000 a year. Dateline Washington– (This month), Acting Federal Housing (FHA) Commissioner Carol Galante announced significant price cuts to FHA’s Streamline Refinance Program that could benefit millions of borrowers whose mortgages are currently insured by FHA. Beginning June 11, 2012, FHA will lower its Upfront Mortgage Insurance Premium (UFMIP) to just .01 percent and reduce its annual premium to .55 percent for certain FHA borrowers. To qualify, borrowers must be current on their existing FHA-insured mortgages endorsed on or before May 31, 2009.
This is big news. Many Sonoma County homeowners have been unable to refinance their FHA Mortgages because the mortgage insurance premiums have actually risen several times since May of 2009. As it presently stands, the monthly mortgage insurance is 125 percent of the loan amount for all loans taken out after May 2009.
Here’s how HUD’s reduced monthly mortgage insurance helps homeowners.
Let’s take a look at a $300,000 loan amount. Based on the new streamline insurance premiums, that monthly mortgage insurance is now $137.50 per month. The additional $175 per month savings is the benefit a current homeowner would receive for participating in HUD’s FHA Streamline Program.
The net tangible benefit for refinancing previously was eroded by the higher mortgage insurance premiums, despite the lower interest rates. In other words, the monthly savings a borrower would receive by reducing their interest rate was offset by higher monthly mortgage insurance premiums. HUD recognized reducing mortgage insurance premiums for homeowners looking to refinance made sense. FHA Commissioner Carol Galante said, “This is one way the FHA can make a real difference to help homeowners who are doing the right thing, paying their bills on time and want to take advantage of today’s low interest rates. By significantly reducing costs for these borrowers, we can make certain they cut their monthly mortgage burden, which will benefit the housing market and the broader economy in the process.”
To determine your eligibility for a new FHA Streamline Refinance, the following requirements must be met:
• Current first mortgage loan must be insured by the Federal Housing Administration (non-FHA loans are ineligible).
• The loan cannot have been taken out after May 31, 2009.
• Previous loans or a refinance does not matter.
• No income verification required.
• No property appraisal required.
• Closing costs must be paid separately from the loan. In other words, they cannot be financed.
• Middle credit score must be 640 or higher.
FHA on Streamline Refinances, what are new lower mortgage insurance premiums
Q: How does an FHA streamline refinance work?
A: An FHA Streamline Refinance allows you to refinance a current FHA Mortgage. The property has to be owner-occupied with one exception: If you originally purchased the property as an owner-occupied residence, but later moved and it’s now an investment property, you are still eligible for an FHA Streamline Refinance despite the new occupancy.
The FHA Streamline Refinance requires no income verification and no appraisal. The program allows you to refinance so long as their loan nets a tangible benefit – i.e payment reduction.
If you’re looking to reduce your loan term going from a 30-year fixed to a 15-year fixed for example, you need to do a full FHA Refinance, which includes a home appraisal. The FHA Streamline Refinance option is more attractive in our local Sonoma County market because underwater mortgages are still eligible for this program.
Additionally, you likely paid upward of 1.75 percent in upfront mortgage insurance premium when you took an FHA loan to begin with. Your upfront mortgage insurance premium refund amount decreases incrementally each month after securing an FHA loan.
For example, if you took out your loan in May of 2009 and you paid $5,000 in upfront mortgage insurance premium, you would be eligible for only 36 percent of that $5,000. In other words, $1,800 would be refunded and applied to your new principal balance loan amount. This is known as the financed loan amount.
Other important considerations:
• You will have to front your new impound account for taxes and insurance when you take out a new FHA Streamline Refinance. Upon two weeks after closing escrow, you will receive whatever surplus funds were in your previous impound account with the old lender you just paid off, making the funds to set up a new escrow account “a wash.”
• Closing the new FHA Streamline Refinance at the end of the month is beneficial to you as a homeowner because of the fact HUD charges you a full month’s worth of interest whether you use the mortgage for the full 30 days or not. Closing at the end of the month actually guarantees you are not paying more money to your current mortgage lender than what is absolutely necessary.
• Any cash to close escrow is easily mitigated by bringing in your next month mortgage payment into escrow. Let’s say you are poised to close your new FHA Refi at the end of June, you simply bring your July mortgage payment that you otherwise would’ve made to the lender into escrow a few days early. Doing so mitigates the cash to close and does not disturb your monthly cash flow to come up with the closing costs.
Q: You mentioned only receiving a certain portion of my initial upfront mortgage insurance premium (UFMIP) refunded back to me. How does this work?
A: When you refinance, you will receive a percentage of your original upfront mortgage insurance premium if you refinance within the first 36 months. Meaning, refinancing beyond three years, there is no refund on your upfront mortgage insurance premium. That is the cost of the money HUD charges for allowing you to use an FHA Loan to finance your property.
Use these following numbers as a general guideline or contact a local mortgage lender. Immediately post closing.
• Month one: 80 percent refund
• Month two: 75 percent refund
• Month three: 70 percent refund
Every month until month 36, the upfront mortgage insurance premium goes down by increments of approximately 5 percent. To get the best approximation of unearned UFMIP amount, you’ll want to contact a lender who is approved to originate FHA Mortgages.
Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.