The big advantage to an FHA streamline refinance is that you can skip the requirement for an appraisal.
But, in some cases, you may opt to get an appraisal on an FHA streamline. Why would someone choose to do this?
Wrap Closing Costs into the FHA Streamline
Standard FHA streamline refinances do not allow the borrower to roll roll closing costs into the new FHA loan amount. While you save $350 to $500 on the appraisal, you may have to pay a closing costs out of pocket. That is, unless you receive a lender closing cost credit.
But if you get an appraisal, and your home appraises with a high enough value, you can wrap closing costs into the new FHA loan.
Let’s look at an example. Let’s say you owe $180,000 on your home and there are $2,500 in closing costs associated with the new loan. You want an FHA streamline, but you don’t want to pay for closing costs out-of-pocket.
You want to wrap closing costs into the new loan, for a new loan amount of $182,500.
If you get an appraisal, you can open a loan of up to 97.75% of the appraised value. In other words, if your home appraises for at least $186,700, you can get a new loan of $182,500 and have no out-of-pocket costs.
Keep in mind that FHA does not allow discount points to be wrapped into the new loan. If you choose to pay discount point, or the fees paid to reduce the interest rate below market rates, you’ll have to pay those out of pocket.
Be sure to ask your lender for an honest estimate of your home’s value. Don’t order an appraisal unless you are very sure your home will appraise high enough. Whether your home appraises high enough or not, you’ll probably be stuck with the appraisal bill.
Your Lender May Require and Appraisal
Another reason to order an appraisal is if your lender requires one. Each lender sets their own rules for how they lend, so they may have additional requirements above and beyond what FHA requires.
So why not just find another lender?
Well, a lender may offer slightly lower rates because of their less-risky, more conservative lending practices. If you have to spend $400 on an appraisal, for example, but get a rate that’s 0.25% better than another lender’s rate, you may come out ahead.
Just make sure there isn’t another lender out there that will give you a great rate and let you skip the appraisal.
Getting an Appraisal on an FHA Streamline Might Make Sense
If you make an educated decision, you may find that opting for an appraisal when you apply for an FHA streamline refinance makes financial sense. Often, it’s better to keep cash on hand and roll it into your new loan amount.
Click here to be connected with a knowledgeable lender to help you decide on the best option for you.