September 29, 2011
FHA rules for Streamline Refinancing Loans changed in 2011, and there are updated guidelines borrowers and lenders need to know when trying to determine what the maximum loan amount might be for a particular borrower. Under the old rules (for cases assigned before April 18, 2011) there were two sets of guidelines.
One set was for FHA streamline refinancing without an appraisal. For these loans, the old system allowed refinancing maximums that did not exceed the principal outstanding balance, minus any up front mortgage insurance premium refund, plus the amount of the new up front mortgage insurance premium (UFMIP).
The old FHA streamline limits also included a “with appraisal” maximum which was based on the lower of the outstanding principal balance minus any UFMIP refund, plus closing costs and prepaid items plus the amount of the new UFMIP OR 97.75 percent of the appraised value of the property plus the new UFMIP.
But changes to the rules for FHA Streamline Refinance Loans mean all cases assigned on or after April 18, 2011 with or without an appraisal are as follows;
The maximum mortgage amount must not be higher than “the outstanding principal balance, minus any UFMIP refund, plus the new UFMIP, “according to the FHA official site. Additionally, the FHA has determined that closing costs, discount points, prepaid items, and other financing costs may not be included in the new loan. That means the borrower must pay closing costs, points and other items mentioned above out of pocket.
The FHA also adds, “Lenders may only increase the loan amount beyond the outstanding principal balance and new UFMIP by using a credit qualifying refinance with an appraisal. The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may not include delinquent interest, late charges or escrow shortages.”
It’s true that these changes require more financial planning on the borrower’s part–saving up for closing costs and related expenses not allowed in the refinancing loan amount may force a borrower to take more prep time now for streamline refinancing than in the past, but keeping the closing costs out of the loan is actually a benefit for borrowers over the long term, as the refinanced loan principal is lower and the borrower is spared paying interest on those costs, had they been included in the loan amount.