November 16, 2012
A reader asks, “My husband and I have a FHA mortgage. We have had the mortgage since 2005. A couple of year ago I lost my job and we got behind.”
“FHA gave us a 2nd mortgage with no interest and we only had to pay it off when we paid off the loan. I am not sure if it was called a modification.”
“Our rate is 6.50%. We have been only 1 x 30 since then and we are current now. Do you think a streamline would work for us and if so would FHA subordinate the 2nd as it is?”
It’s impossible to comment on whether a loan “works” for an individual as so much about home loan refinancing depends on individual circumstances, but the subordinate lien question is answered in the FHA loan rulebook. According to HUD 4155.1 Chapter Three, Section C, there are two types of situations that apply in this case–FHA Streamline Loans with an appraisal, and FHA Streamline Loans without an appraisal.
The rules for Streamline refinancing without an appraisal, “A subordinate lien, including a Home Equity Line of Credit (HELOC), regardless of when taken, may remain outstanding, but the entire lien must be subordinated at refinance.”
The rules also state, “If subordinate financing remains in place, the maximum combined loan-to-value (CLTV) is 125% CLTV is based on the original appraised value of the property, and maximum CLTV is calculated by taking the original FHA base loan amount (the original FHA principal balance excluding financed UFMIP), adding all other financed liens still outstanding, and dividing by the appraised value. This calculation may not exceed 125%.”
For Streamline refinancing loans with an appraisal, “A subordinate lien, including a Home Equity Line of Credit (HELOC), regardless of when taken, may remain outstanding, but the entire lien must be subordinated at refinance.”
This section also states, “If subordinate financing remains in place, the maximum combined loan-to-value (CLTV) is 125%, and CLTV is based on the new appraised value.”
Borrowers with additional questions on the subordinate lien issues should speak to a loan officer or contact the FHA directly at 1-800 CALL FHA.
Do you have questions about the FHA home loan program? 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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