refinance options

streamline refinances and Cashout Refinances

FHA streamline refinances emerged onto the mortgage scene in the early 1980's. Since then, thousands of FHA home owners have utilized this program to lower their interest rate with fewer costs and relative ease.

A streamline refinance refers only to the amount of documentation and underwriting that is conducted on a loan file by the mortgage company. Mortgage companies may offer FHA streamline refinances at "no cost" (actually no out-of-pocket expenses to the borrower) by charging a higher interest rate on the new loan. Other companies may offer streamline refinances that wrap the costs into the new mortgage amount. Unfortunately, there must be sufficient equity in the property. Before deciding which option best fits your needs, it is important to weigh not only the costs but also the long term impact that a higher rate or a higher mortgage payment will have.

FHA streamline refinances do not require credit underwriting, unless the principal balance is increasing, in which case, HUD requires a 12 month payment history. New individuals may be added to title on a streamline refinance without credit review. Deleting individuals from title on a streamline refinance may require qualification (certain exceptions may apply).

The following are basic requirements of a FHA streamline refinance:

The mortgage to be refinanced must already be FHA insured
The borrower must have been making the mortgage payments on time
The refinance must lower the principal and interest payment of the previous mortgage payment
The borrower may not receive cash from loan proceeds
Any subordinate financing may remain in place as long as it is subordinated on title.
The loan must have owned the property and had the FHA mortgage for at least six months to be eligible
The term of the new mortgage must be the lesser of 30 years or the unexpired term of the mortgage plus 12 years. A borrower cannot refinance from a 15 year loan to a 30 year loan.
An appraisal is not required unless the closing costs are wrapped into the loan. Streamline refinances without an appraisal are limited to the unpaid principal balance, minus any refund credit of the mortgage insurance premium (MIP), plus the new upfront MIP if it is to be financed in the mortgage.
No termite report is required
The borrower cannot be late, delinquent, or in default of any federal debt.

FHA Cash Out Refinances

1.“Cash-Out” Refinances - Effective for mortgages endorsed on or after October 31, 2005, FHA offers a two-tier cash-out refinance program and in computing maximum allowable mortgage amounts the following must be applied:

a. 95% Loan-To-Value:

1) The loan is limited to 95% of the appraised value.
2) The property that is security for the refinanced mortgage must be a 1- or 2-unit dwelling.
3) The borrower as his or her principal residence must have owned the subject property for at least 12 months preceding the date of the loan application.
4) If the property is encumbered by a mortgage, the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months, i.e., no payment may have been more than 30 days late and is current for the month due.
5) Subordinate financing may remain in place, but subordinate to the FHA insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the homeowner qualifies for making scheduled payments on all liens.
6) Any co-borrower or co-signer being added to the note must be an occupant of the property.
7) If the loan is scored through FHA TOTAL Scorecard and received an “Accept/Approve” recommendation, but there are one or more 30-day late payments on the first mortgage in the past 12 months, then the loan is not eligible for 95% LTV cash out.

b. 85% Loan-To-Value:

1) The loan is limited to a combined LTV (FHA insured first mortgage and any subordinated lien) of 85% of the appraised value provided the borrower has owned the property for at least one year.
2) The property that is security for the refinanced mortgage may be a 1-4 unit property.
3) Property must be owner-occupied.

i) If the property was purchased less than one year preceding the final application, the mortgage amount must be calculated using the lesser of the appraised value or the original sales price of the property multiplied by 85%.

4) Properties that are owned free and clear may be refinanced as cash-out transactions.
5) Properties acquired by inheritances within the past 12 months are eligible for a cash-out refinance transaction limited to 85% of the appraised value. The lender must document the acquisition by the borrowers via inheritance.

2. “No Cash-Out” Refinances (non-streamlined): The maximum mortgage is based on the lesser of the two calculations below:

a. “Maximum loan-to-value percentages” multiplied by the appraised value, exclusive of closing costs. (Please refer to HUD Handbook: 4155.1 Paragraph 1-11A chart)
b. Sum of existing first lien, any purchase money second mortgage and/or any junior liens over twelve (12) months old, closing costs, prepaid expenses, accrued late charges, escrow shortages, borrower paid repairs required by the appraisal, discount points, and other fees as determined by the appropriate HUD Homeownership Center (HOC), subtract any refund of up-front MIP. The prepaid expenses may include per diem interest to the end of the month on the new loan, hazard/flood insurance premiums, mortgage insurance premiums and property tax deposits needed to establish the escrow account. The existing first lien may include the interest charged by the servicing lender, when the payoff is not received by the first of the month, but may not include any delinquent interest.

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