Once upon a time in a land where gas was 75 cents a gallon and bread was 33 cents a loaf interest rates were in the high teens. Of course I'm writing of the 1980's when our economic situation was not too unlike the one we have today although there were vast differences. Yet during this time and shortly thereafter the FHA streamline refinance was born with one purpose in mind: Get FHA borrower into a lower rate and lower their monthly cost of home ownership.
It was much simpler back then to see the savings. Many families came in to refinance from interest rates as high as 15% or 16% down into rates like 9% or 8.5% - that was then - this is now. Families today are scurrying to refinance from 6.25% to 5% and I can't say I blame most of them. After all on a $250,000 loan we're talking about a couple of hundred dollars a month in savings on interest alone.
First let's dispel a couple of myths about the FHA streamline refinance program. Most importantly the FHA streamline is not a "no closing cost" refinance. There are closing costs and they can be paid one of three ways:
The borrower (home owner) can pay them out of pocket
The lender can pay part or all of them with an interest rate higher than par
They can be rolled into the refinance loan amount
However you choose to pay them, paid they must be. The attorney will not work for free. The underwriter will not work for free. The processor and loan officer will not work for free. Now I know there are a couple of very large banks/lenders telling people they are offering no cost loans. No, they are not. The home owner is paying the closing costs one of those three way. If you are dealing with a mortgage broker instead of a direct lender they are require by Federal law to show you how their commission is applied in the closing costs. Banks and direct lenders are exempt from it but it's still there - nobody does loans for free except maybe a very minuscule number of true non-profits which I have not lately seen.
Qualifications for an FHA streamline refinance vary from lender to lender. Oh I know you thought HUD made the rules. In a way they do make the rules but those are the base line rules. In other words FHA will not insure a loan that does not conform to their qualifications. The lenders (who actually write the check for the loan) have what are called "lender overlays" to make sure their investors are satisfied with the quality of borrowers getting the funds. In other words if you're a deadbeat you ain't getting no money. (Ain't is Greek for "are not", "can not" or "is not".)
Most lenders today are requiring a minimum middle credit score of 620 or higher even to qualify for a streamline refinance. Fortunately we can still get FHA streamline refinances closed with:
No credit examination (all we may need is a mortgage payoff statement - we order it)
No verification of income (employment is required to be verified)
No verification of assets (no bank statements or tax returns)
No appraisal of value (this applies in almost every instance but check with your FHA professional)
Keep in mind the above applies in most cases when I am doing the loan but you really need to check with your loan officer (not all of them are qualified to handle FHA streamline refinances so I can give you names if you're not in Georgia or Florida or the southeast).
Ken Cook - Web coder (I write the programs that make the whole world zing!) (678) 439-8683 Anything your mind can conceive I can create - online that is!
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NOTICE: I have been writing in this blog since July 2006. Some of the older articles may contain information that has changed. Please check the date and phone me if you have any questions.
Ohhhhh the days when we could actually get an FHA done in 30 days or a VA done in 60 days. And people complain today about the time it takes to get approved. Makes me laugh. We are no way close to what we were in the early 80's....thank goodness. Newer agents have no clue how good the lending process is whether FHA, VA or conventional. Remember the days of ALL documents and tax statements with ORIGINAL signatures only......by mail....each way....and then to FHA or VA by mail.
Ken,
"Qualifications for an FHA streamline refinance vary from lender to lender. Oh I know you thought HUD made the rules. In a way they do make the rules but those are the base line rules. In other words FHA will not insure a loan that does not conform to their qualifications. The lenders (who actually write the check for the loan) have what are called "lender overlays" to make sure their investors are satisfied with the quality of borrowers getting the funds. In other words if you're a deadbeat you ain't getting no money."
Don't you wish Active Rain would install a shout button?
This applies to all lenders not just FHA! Brokers and Bankers may all where the same style suit. but they're not necessarly cut from the same cloth!
Good post, very good!
Bill
Tim - thanks for the trip down Memory Pain! The reason for the slowness today is because we're fewer in numbers :)
Bill - a shout button ... hmm that could be frightening in the hands of some Rainers! Thanks for the props.
...and Ken, how about a netting escrow proposal to make it even that more attractive to the borrower? Cogent has it and we are about the only title company that has figured it out.....if you are interested then call me....just saying
Thanks
Bo
Ken... It is sad that a FHA streamline can be a tad harder nowadays than it was just a few months ago. In regards to turn times, we can still get FHA loans done in 2 weeks. It starts with putting together a semi complete 1003... but I am sure you know this... lol I guess I am just responding to Tim's comment. Yes, many offices and companies are lean now, but again, if a complete 1003, with a semi quick appraisal, things can be done in a timely manner. 3 weeks should be good enough. I would mention, if it takes 45 plus days, this could be a major red flag.
Bo - we need to get together anyway. I just popped you an email.
Jeff - agreed. 45 days is plenty of time to do anything including a 203(k). Even if the broker is having to use a third party national appraisal company 30 days should be plenty.