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FHA Streamline: New Benefits Mean More Savings for Orange County Homeowners

Since 2008, refinancing an FHA loan has become more difficult and less cost effective. HUD’s recent announcement turns back the clock and makes FHA streamline refinancing much more practical. Starting June 11, 2012 Orange County homeowners will be able to refinance their FHA loans with two fantastic new benefits. However, these benefits are only available for 3+ year FHA note holders.

In 2008, if you wanted an FHA 30 year fixed loan with less than 5% down, you paid 55 basis points for monthly mortgage insurance. Mortgage insurance rates have increased every year thereafter. On April 9, 2012 mortgage insurance rates rose to their highest levels yet.  HUD’s mortgagee letter 12-4 boosts annual mortgage insurance premiums to 125 basis points. In addition, the up-front mortgage insurance premium went up to 1.75%. That’s a 227% increase in the monthly mortgage insurance payment!

But the harsh reality of FHA’s mortgage insurance changes has been a tough pill to swallow. It’s been especially tough since interest rates have been on a steady decline to record lows. These declines have piqued the curiosity of Orange County homeowners looking to reduce their monthly mortgage. However, the MI increases nearly offset the savings in principal and interest, making an FHA streamline refinance undesirable for many people.

As the savings benefit narrowed, the ability to qualify has narrowed as well. That’s because FHA mandates a net tangible benefit of 5%. What’s that mean? It means that your current principal + interest + mortgage insurance payment must decrease by at least 5%. The reduction in savings and increased difficulty in qualifying stopped many Orange County homeowners from refinancing.

The latest changes address these impediments. If your loan was delivered to HUD on or before May 31, 2009 then you’re eligible for these benefits. What are they?

1. You keep your existing monthly mortgage insurance rate of 55 basis points.

2. Your funding fee is only .01%. 

3. Mortgage terms of 15 years or less and LTV’s of 78% or less remain exempt from annual mortgage insurance.

This change could not have come at a better time for Orange County homeowners. Yields on treasury bonds are near all time lows. This means that interest rates are also at prime levels.

What does this mean for an FHA note holder with a $500,000 loan amount? Based on the current FHA streamline MI rates your monthly mortgage insurance payment would be $625. Your up-front mortgage insurance premium would add another $8,750. Compare that to the new rates and you’ll see the difference for yourself. The monthly mortgage insurance payment would be $229 with an additional $50 in up-front premium. That’s $396 saved each month and $8,700 in premium!

And don’t worry about your appraised value. With the FHA streamline, no appraisal is necessary.

With interest rates once again near record lows, this indeed is the time to refinance with an FHA streamline loan. There’s no need to wait until June 11th to get started. If you’re ready to see if you qualify, you can apply now. We can get you prepped and ready to be the first out of the starting gates.

Scott Storace


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