Streamline FHA Refinancing

I realize this may seem like a strange topic to discuss on a bankruptcy blog but as I tell all of my clients in my Indianapolis area bankruptcy practice, if I can help you avoid bankruptcy I will do so. Furthermore, if I can help you save money even if you still have to file bankruptcy I will do so. Thus, the reason for this topic. One of the things I have been talking to many of my clients about lately is considering an FHA Streamline refinance.

If you currently have an FHA loan, you may be able to qualify for a rate reduction without verifying your income, which means no tax returns or pay stubs and no bank statements. An FHA Streamline does not require a credit report. However, lenders may require one for discount points and other costs associated with the loan. You must be current on your mortgage payments to qualify and a verification of this is required by FHA.

Often times appraisals are not needed. However, an FHA Streamline loan can not be for a higher amount than the original balance on the current FHA loan on the property. If your home has gone up in value and you need to roll closing costs or things of that nature into the loan, an appraisal may become necessary.

Certain rules and limitations will determine if your situation will fit into the FHA streamline guidelines. I have listed some of the basics below:

1. The current loan must already be FHA loan (as stated above) and the property must be your primary residence.
2. The current mortgage should not be delinquent (as stated above).
3. You can only cash out $500.00 from the new loan.
4. The refinance must result in reducing principal and interest payments (duh!).

If you go for an FHA streamline without a new appraisal, the maximum loan amount will be determined by using the lesser of the two calculations set forth below:

1. The original balance of the current FHA mortgage, plus the new up front mortgage insurance premium, which is currently 1.5% of the loan amount.
2. The existing FHA mortgage balance, plus closing costs, prepaid taxes, insurance, interest, as well as the upfront mortgage insurance premium (the refund of the old premium will be factored into this figure).

If you go the new appraisal route for an FHA streamline refinance, the maximum amount of the new loan will be determined by the lesser of the two calculations set forth below:

1. The appraised value multiplied by the maximum loan to value percentage. In Indiana, this is currently 97.75%.

2. The existing FHA mortgage, plus closing costs, prepaid taxes, insurance, interest, as well as the upfront mortgage insurance premium (the refund of the old premium will be factored into this figure).

I know this is a lot of information to digest but this is an option everyone should seriously consider. If you drop your interest rate one full percentage point (depending on the value of the loan), you may see a savings of $100.00 or more per month. That is $1,200.00 extra per year, which can go a long way during difficult financial times.