FHA Streamline Refinancing Costs and Benefits When Underwater

If you have an FHA loan and are underwater, you may be able to still obtain a streamline refinancing with a lender. See if you qualify.

Q: I purchased and closed on a home May of 2009. The house is now 30 percent underwater. We bought it for around $120,000 and now its worth around $80,000.

I’ve made all my payments on time and have not missed any of them and I have an FHA loan. You mentioned on your WSB radio show in Atlanta that there is a new loan refinancing program that might help me in my situation.

I need clarification on a couple of things. Can I get the principal on my home reduced to its current market value? Can I get my mortgage insurance (MI) payment reduced? Will I have to pay closing costs? And what interest rate can I expect to receive? My current interest rate is 5.5 percent.

A: Thanks for listening to the show.

Wow – you are lucky. You got your loan just under the May 31, 2009 deadline that seems to be crucial for these new and improved FHA streamline refinances.

For single family refinance loans that carry an application date of June 11, 2012 and after, if the loan was entered onto FHA’s books by May 31, 2009, FHA will lower its upfront mortgage insurance premium (UFMIP) to just .01 percent and reduce its annual premium to .55 percent.

That’s a big change from another just-announced increase in UFMIP and regular mortgage insurance premium (MIP) for FHA loans. Late last month, FHA also announced it will increase its UFMIP on most other loans by 75 basis points to 1.75 percent. In addition, FHA is raising its annual MI premiums 10 basis points and 35 basis points on mortgages higher than $625,500.

According to the Department of Housing and Urban Development (HUD), some 3.4 million households with loans endorsed on or before May 31, 2009, pay more than a 5 percent annual interest rate on their FHA-insured mortgages. By refinancing through this streamlined process, it’s estimated that the average qualified FHA-insured borrower will save approximately $3,000 a year or $250 per month.

But just because you qualify for this special program doesn’t mean your loan balance will be written down to today’s home value. And, there may be some closing costs involved with this streamline refinance, although these should be nominal. You can expect to get an interest rate of around 4 percent, though it may be slightly higher or lower depending on when you lock in the mortgage.

The goal should be to keep the loan you have but just lower the interest rate you pay. That way, you’re not adding new years of indebtedness onto your existing loan term.

The good news is that you don’t have to pay for an appraisal or a credit check, since neither are required for current FHA borrowers looking to qualify under the new program.

For information on the program, contact a HUD-certified housing counselor or call your lender for details.


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