MyMortgageInsider sat down with loan officer Chris Allen (Lic # MLO-97896) of Cobalt Mortgage to talk about the ins and outs of the FHA streamline refinance program.
MMI: Hi Chris. There’s been enormous interest in FHA streamline refinances lately. What’s the single greatest thing about an FHA streamline?
Chris: Most FHA streamlines do not require an appraisal so you can be upside down on your mortgage and still qualify. The flexible FHA underwriting guidelines apply on the streamline product as well.
MMI: Are there other types of FHA refinances besides streamline?
Chris: FHA has a traditional rate and term refinance loan as well as a cash-out refinance loan. With the rate and term refinance, you can roll in closing costs, but you need an appraisal and appraised value to support the higher loan amount. With a cash-out you are limited to a lower loan-to-value and need an appraisal.
MMI: Many of our readers may be hesitant to start the FHA streamline application process. What are some of your clients’ biggest worries when they apply for an FHA streamline, and how do you address their concerns?
Chris: The cost of the loan, especially the “out of pocket” cost, is always a concern. However, there are options for all or most of the costs to be covered. In addition, many times there is an FHA upfront mortgage insurance credit from the current loan as well to help off-set costs.
MMI: Does it take long to complete an FHA streamline?
Chris: Typically about 30 days, although in times of high refinance volumes, it can take longer. FHA streamlines should close near the end of the month because when the old FHA loan is paid off, a full calendar month of interest is due. So if you pay off an existing FHA loan at the beginning of the month, you pay all the interest due for that month even though it is not yet accrued. This is just the way FHA has things set up.
MMI: What are the best steps an FHA streamline applicant can take to close their loan quickly?
Chris: The best way to speed up the process is to supply all documents required for underwriting as soon as possible.
MMI: Does a borrower need to be currently employed to qualify for an FHA streamline?
Chris: Yes, the borrower must be employed or have another income source to qualify for an FHA streamline loan.
MMI: Does someone need money in the bank to pay for closing costs or can the costs be rolled into the loan?
Chris: Only the upfront mortgage insurance premium can be “rolled into” the loan amount on an FHA streamline. However, the borrower can select an interest rate that will generate a lender credit sufficient enough to cover some or all of the closing costs and pre-paid items.
MMI: What are some major pieces of documentation an applicant will need for an FHA streamline? Does an applicant need anything for the initial call to their loan officer?
Chris: An applicant does not need anything for the original call, although having the documentation ready will help speed up the process. In general, the major pieces of documentation needed are copies of the last 2 years’ W-2’s, copies of most recent pay stubs covering a 30 day period, a copy of a current mortgage note, a current mortgage statement, copy of identification, and the homeowners insurance information.
MMI: Most people have heard that rates are low. Where are FHA loan rates right now compared to, say, the past 10 years?
Chris: Back in 2000 rates were still hovering around the double digit mark, around 2005 they had come down to close 6% or even just under. As of February 1st, 2013, I have seen FHA interest rates as low as 3.25% with an APR at 5.133%. Currently Interest rates are close to 70-year lows.
MMI: If a homeowner owes more than their home is worth, can they still be eligible for an FHA streamline?
Chris: Absolutely! Since no appraisal is required most of the time, homeowners can in those cases refinance even if they are underwater on their mortgage.
MMI: What are some of the biggest advantages of an FHA streamline compared to say, a standard conventional refinance? What are some of the main restrictions?
Chris: Underwriting guidelines are more flexible with an FHA loan compared to a conventional loan, FHA loans are assumable, and not having to pay for an appraisal is another great advantage too.
MMI: Do you have any additional words of wisdom to impart to our readers about FHA streamline refinances?
Chris: The FHA streamline refinance is a great option for the right person just like any other loan product offered. If you are looking to refinance into an FHA streamline, make sure the numbers pencil out. You might find yourself saving money on a monthly basis but you need to consider the long term benefits as well as the cost of refinancing before moving ahead. Always contact a seasoned mortgage loan originator to help advise you of your options.
Chris Allen is a licensed loan originator with Cobalt Mortgage (NMLS-35653, WA #520-CL-48866) in Bellevue, Washington. Chris is a former pro golfer, touring the US and Canada from 2000-2002. He has been in the mortgage business for over 9 years.