The real estate collapse of the last decade has left a lot of home owners and Americans desiring a home feeling defeated. However, recent events have changed and the economy has provided a lot of advantages that are making getting a new home easier. The Federal Housing Authority has worked long and hard to make it possible to save money on refinancing, and also gives new home owners hope for a bright future.
New policies at the FHA give existing owners the ability to refinance fast and easy. The FHA Streamline Loan is a process of refinancing that allows home owners to use the information from their initial loan to receive an entirely new mortgage loan. This program has been around for some time, but new changes make it even more appealing.
In the past, FHA loans had some drawbacks to anyone closing a new loan at any time other than the last day of the month. Penalty interest payments for the remaining days of a month could end up creating a double interest payment for the initial month. Now, new policies let home owners close at any time during the month without fear of double interest requirements.
Combined with the usual low interest on FHA loans that are typically 0.25 percentage points below a conventional lender rate, the FHA is a great option. Another change in policy involves the cost of mortgage insurance premiums (MIP) that all FHA loans must carry. Recent reductions have lowered the amount paid by as much as 50%, saving home owners a lot of money over the course of the loan. This is an extra incentive for existing home owners to refinance old FHA loans that carried higher MIP payments as well.
FHA STREAMLINE LOAN INFORMATION
A Streamline loan is an available option for any home owner with an existing FHA loan. This is an important element to note. No other loan programs, including other government backed loans such as VA loans, USDA loans or federally insured loans from Freddie Mac or Fannie Mae are eligible for Streamline applications. However, the VA loan program does have its own Streamline version.
The government defines the FHA Streamline loan as one with reduced need for verifications, paperwork and appraisals that also gives existing home owners a savings of at least 5% on monthly mortgage costs. Mortgage payments are the total of the principle loan amount, mortgage insurance and interest paid each month by the home owner. For most people with an existing FHA mortgage even a small drop of 50% in interest rates will qualify them for the ability to save 5% and apply for a Streamline refinance. Today’s mortgage rates are typically much lower than 50% of the rates paid by new home owners just two years ago, and the savings from a new Streamline loan are considerable.
Requirements for an FHA Streamline loan are:
• Current payments on existing FHA loan
• A current FHA loan of at least six months in duration
• New Streamline loan must result in at least a 5% savings on monthly costs
VERIFICATION AND HASSLE FREE FHA STREAMLINE LOAN
For many home owners the best thing about the Streamline loan program is the hassle free, no verification process. The official FHA mortgage guidelines state no proof of employment, credit reports or home appraisals are required in a Streamline loan application. The assumption is that if you are already paying on an FHA loan, and it is in good standing with current payments over the current six month period, you will be even more likely to continue to pay on the loan if it is more affordable regardless of your employment standing or credit rating.
Streamline loans from the FHA are available in larger sizes than traditional FHA loan limits as well making them available to home owners in high cost areas such as San Jose, California; New York City, New York; and Montgomery County, Maryland. The jumbo loans in the FHA Streamline category can go up to $729,500 for a single family home compared to the $625,500 of the standard FHA loan.
FHA Streamline loans are available to home owners with multi-unit housing as well as long as they were financed using the FHA 203k loan program. The FHA 203k is a loan for home construction.
NO DOUBLE INTEREST ON NEW FHA REFINACE LOANS
The Streamline mortgage loan is named for its accelerated, low hassle, no paperwork process. Non-streamlined loans are also available from the FHA for home owners looking to get lower interest rates with easier requirements. For home owners with non-FHA loans, the process will still require all of the paperwork of a standard loan including proof of employment and income, credit checks and a home appraisal. However, FHA-to-FHA loans close extremely quickly, typically 25 days faster than a non-streamlined loan.
The fast closing was an issue in the past with many home owners stalling the close until the last possible minute at the end of the month in order to avoid the interest penalties. Now, new regulations beginning in January 2015 eliminates the old option for the lender to collect on interest for the entire month regardless of the closing date. In the past, closing at the wrong time could cost a full 31 days of extra interest, even if the closing date was only one day away from the new interest period.
Current FHA regulations only allow lenders to charge actual interest for the days of the loan. That means new FHA mortgage buyers can close safely at any time of the month and start saving even faster.