December 31, 2012
With interest rates at lows not seen in many years, many FHA borrowers are considering refinancing their existing FHA home loan even if they have previously refinanced in the last few years. While some consider the term “serial refinancing” to be negative, this practice is in vogue once more as many rush to get better interest rates than they had access to when they first applied for a mortgage loan.
Refinancing is especially popular at present due to concerns over the “fiscal cliff” and its potential to affect the average person’s bottom line through higher income taxes, the possible reduction or elimination of certain tax breaks including the mortgage interest deduction. Is now the right time to pre-qualify for an FHA refinance loan or apply for FHA streamline refinancing? That’s a choice only the borrower can make, but if you want lower interest and/or monthly payments, an FHA streamline loan could be right for you.
What are the features of an FHA streamline refinance? According to the FHA official site, streamline loans are:
…”designed to lower the monthly principal and interest payments on a current FHA-insured mortgage, and must involve no cash back to the borrower, except for minor adjustments at closing that are not to exceed $500.” One of the benefits of a streamline refinance includes the fact that FHA loan rules don’t require an appraisal.
The lender is free to require one, but the FHA does not insist on a new appraisal. Additionally, “FHA does not require repairs to be completed on streamline refinances with appraisals, with the exception of lead-based paint repairs. However, the lender may require completion of repairs as a condition of the loan.”
What happens if the lender does require an appraisal? According to FHA loan rules, “If an appraisal has been performed on a property, and the appraised value is such that the borrower would be better advised to proceed as if no appraisal had been made, then the appraisal may be ignored and not used, and lender must notate this decision on the HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary.”
Since streamline refinance loans do not permit cash back to the borrower (as mentioned above) there are no further underwriting requirements than a few basic forms needed to get the loan moving. However, the lender is free to require additional underwriting, especially if there are circumstances where the new loan may actually result in higher payments or higher interest rates. Borrowers who need to know more about these issues should discuss them with a loan officer or contact the FHA directly by calling 1-800 CALL FHA.
Do you have questions about FHA mortgages? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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