Posts Tagged “FHA UFMIP”

FHA Mortgages offered through HUD are Government insured against default and therefore, because of the government cushion given to Lenders who make FHA loans, very attractive interest rates are available. Furthermore, just like for Veterans (VA Loans), FHA carries a special feature that’s not available for Borrowers who have loans backed by Fannie Mae or Freddie Mac (Conventional). This special feature is known as a STREAMLINE REFINANCE.

A Streamline refinance is called that because unlike the rigorous, almost intrusive underwriting process Borrowers are subjected to when they purchase a home, a Streamline refinance is much more streamlined. . . truly no income or asset verification , and no credit underwriting except for a close look at the payment history on the FHA mortgage being refinanced.

As recent as February 2011, HUD (which oversees FHA) announced a less stringent underwriting requirement for Streamlines to the point where even borrowers who are presently unemployed or working part time can be approved.
The thinking here is to foster the probability that the FHA insured mortgage will continue to be paid on time by the Borrower, and to do whatever possible to make that happen. Naturally, if a mortgage is being paid on time already, and the monthly payment was lowered, easing the burden on that Borrower will only enhance the chances of continued timeliness.

So what are the ‘Essential Requirements’ ?

(1) A Clean 12-month Payment History on the FHA Mortgage Being refinanced

Borrowers who’ve experienced a rocky road in keeping their payments on time thus far, are still likely to have problems despite a lowering of their payment. Such borrowers often find a way, sadly, to take their newfound savings and funnel it to something not financially wholesome. Bad habits die hard.
A clean mortgage history however is indicative that future payments will be made on time, especially if the payments are lowered.

(2) 210-Day Waiting Period/Cooling-off period between refinances

If the FHA mortgage being paid off is a new one, 6 mortgage payments must have been made before that mortgage is eligible for payoff via a FHA Streamline. Furthermore, 210 days must have passed since the most recent refinance.

(3) Job and Income – Not Verified

Although Lenders who make FHA loans may have an overlay to the true HUD guidelines, an FHA streamline can be done without any verification of the Borrower’s employment or income. The other factors must be in place, but even an unemployed Borrower can be eligible to lower their payments.

(4) Minimum Credit Score Requirement – Void

FHA by rule doesn’t look at FICO scores and never has. It’s Lenders who make FHA loans who impose such minimum standards. However a true Streamline doesn’t look at a Borrower’s credit score. Only the mortgage payment history on the loan being paid off is considered.

(5) Benefit To Borrower

The concept of ‘Net Tangible Benefit’ (NTB) was recently introduced by HUD to govern FHA Streamline Refinances. The essential component of the NTB is to make sure the Borrower’s monthly P&I + MI amounts are being reduced by at least 5%. Lowering the overall monthly obligation because the property taxes were reassessed is therefore not an acceptable purpose or reason. Having said this, refinancing a Borrower who is in an FHA Adjustable Rate Mortgage, into a Fixed rate FHA loan is always an acceptable ‘TNB’.

(6) Limit To Increase in Loan Amount

The loan amount cannot be raised beyond the present principal balance to cover closing costs. The new Loan balance is limited by the math formula of Present Loan Balance + Upfront Mortgage Insurance Premium). The standard lender fees, escrow/title fees, impounds of tax/insurance etc must be either paid by Borrower using cash at the closing or absorbed by lender credit.

(7) Appraisal is Not Required
Upside down homes are still eligible for FHA Streamlines because a new Appraisal is not required. HUD has already become committed to insuring the loan, so a change in value in either direction does not affect the eligibility of the borrower to lower their payments.

(8) New Mortgage Insurance offset by Old Mortgage Insurance Already Paid In
All FHA loans carry mortgage insurance both as a one-time upfront amount funded at closing and then an ongoing monthly amount based on the loan amount.
However within the first 36 months since obtaining the FHA loan that’s being paid off/refinanced, the borrower can secure a refund for a portion of the amount paid. The longer the loan has been held, the lower the amount of the refund. The chart below actually indicates the approx. amounts .
For example, refinancing in month# 20 would mean an approx. 45% refund of the original Upfront Mortgage Insurance amount paid. This refund amount isn’t given back as cash, but instead applied as a credit towards the overall cost of getting a new Upfront Mortgage insurance. See below for a useful Chart on FHA Mortgage Insurance refunds applicable for Streamlines

FHA streamline MI refund

FHA Mortgage Insurance refund chart


Remember that once a Borrower has paid on their FHA mortgage for 5 years (i.e. 60 months) the Mortgage Insurance can be removed.

Charles Vamadeva, TheZeroDownLoan.com

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There are some sweeping changes coming in the Fall of this year (2011) which will make Mortgage lenders more accountable for the loans they fund and approve; some speculate that this is the part of the reason the USDA has chosen to tack on Mortgage Insurance (just like FHA’s) to the monthly payment.
Thankfully, we the tax payers won’t be the ones needing to subsidize things. The homebuyer pays Mortgage insurance just like he/she would for an FHA loan.
Here’s how things will change , come Oct 1, 2011.
Presently the USDA Zero down loan carries with it a 3.5% Upfront Guarantee fee and no monthly mortgage insurance.
After Oct 1, the Upfront Guarantee fee drops to 2.00% and an annual Mortgage insurance of 0.3% will be added.
The annual mortgage insurance will never go away over the life of the loan. (This makes it unlike FHA, where after 5 yrs and 78% Loan-To-Value threshold, the mortgage insurance can go away).
Good news is that the annual mortgage insurance $dollar amount will decline each year because it’s recalculated at the new principal balance of the loan each year.
Overall this means an increase of about $16/mo for every $100,000 loan amount borrowed. Not a deal killer necessarily, but definitely something that affects debt ratio and qualifying ability/buying power.
Stay tuned for more updates :)
Be sure to use our super Mortgage Calculator (unlike any other) to compare payments at www.thezerodownloan.com/mortgage-calculator

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So I often get asked, “why should I purchase a home using the USDA Zero Down loan when I have money for downpayment and can even put 20% down ?”
Truth is, your money is better ‘grown’ in other investments than remaining dormant as equity in your home. You see, historically house prices rise anyway, regardless of whether you create equity at the beginning or not.
So why not take your hard earned money and put it to better use? Like growing it for your kids’ college education or helping your parents through their retirement years?

FHA vs USDA? In terms of Payment comparison, Remember, FHA has lower Upfront Mortgage Insurance (1%) than USDA’s upfront Guarantee Fee (3.5%). But FHA has monthly mortgage insurance where USDA Zero down does not. Be sure to check out our Super Mortgage Calculator which compares these loans with just a few clicks.

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