Arizona Mortgage Broker Blog

THE BENEFITS OF A FHA STREAMLINE REFINANCE WITHOUT AN APPRAISAL

    For homeowners who currently have an FHA mortgage on their primary residence, a FHA Streamline without an Appraisal is an excellent option to lower their monthly payment! This type of refinance is particularly beneficial to those with a FHA mortgage who are upside down in their home. Since no appraisal is necessary, the current market value of the home is not taken into account.

In fact, there are no ratios on a FHA Streamline because there is no re-qualifying for the new mortgage.  This means that there is NO credit check and NO income or asset documentation is needed. The lender simply needs a current payoff statement, a mortgage rating showing there have been no late payments on the mortgage (in the past 12 months) and a minimum credit score of 620. (please contact me if you have a score less than 620, as I have one lender who doesn't require credit scores)  Any debt reporting on a full "tri-merge" credit report isn't reflected on a mortgage rating. Again, since there are no ratios, credit debt isn’t considered in qualifying for the new loan.

On a Streamline Refinance without an Appraisal, the new base loan amount cannot exceed the original mortgage balance. So for example, if the current mortgage note shows a balance of $205,500, the new mortgages BASE loan amount can't be more than this amount. The base loan amount plus the new Up Front Mortgage Insurance Premium determines the new TOTAL loan amount on an FHA loan. It is however, important to remember that a refund of the unused portion of the "UFMIP" will be issued through the new transaction. This essentially decreases the cash required to close on the new loan.

Since NO appraisal is needed, the borrower is required to come to closing with some cash out of pocket. Personally speaking, I ask my clients to come to close with a full (PITI) mortgage payment, then issue a broker credit for the amount over this. Also, most of my clients are able to obtain a new interest rate that is a point lower than what they currently have. More often than not, this allows me to avoid having to charge an Origination fee thereby allowing the client to come to closing with a cash amount equal to a full mortgage payment.  The amount of the broker credit varies depending on the specific transaction.

Some of the benefits of a Streamline Refinance without an Appraisal are:

• a lower interest rate
• a lower monthly mortgage payment
• the rate is assumable to potential homeowners so the lower the rate, the better
• NO APPRAISAL means the opportunity to refinance even when a borrower owes more than the home is currently valued
• a refund (through the new transaction) of the unused portion of the Up Front Mortgage Insurance Premium
• Streamline process means minimal documentation is needed

Here is an example to put the potential savings into perspective:

EXAMPLE: On a $300,000, 30 year fixed mortgage, with an interest rate of 6.75%, the (principal and interest) mortgage payment would be approximately $1945.00.

POTENTIAL SAVINGS: By simply reducing the interest from 6.75% to 5.5%, the monthly payment would be approximately $1703.00 a month. That's a monthly savings of $242.00! Or $2904.00 in annual savings. $29,040 over a decade, $87,120.00 over the course of the 30 year term.

The streamlined process only requires the file to contain the following documentation, some of which is needed from the borrower:

• Full application package with Application/Good Faith Estimate/Truth in Lending, State/Lender/HUD required disclosures*
• FHA Connection documentation (which is obtained by the broker)
• Social Security verification (copies of the borrowers drivers license and social security card)*
• Copy of the Mortgage Note and Deed of Trust (for the current mortgage)*
• Current copy of payoff from the current mortgage holder
• Mortgage rating with credit scores from all three credit bureaus
• Current preliminary title report
• Proof of homeowners insurance (obtained by the broker)*

The basic process of a FHA Streamline Refinance without an Appraisal is as follows:

• Mortgage Consultant and Borrower(s) discuss the borrower’s current rate. Then determine the best available rate to ensure a refinance is worthwhile
• Mortgage Consultant locks rate in with the lender per approval from borrower
• Borrower collects and sends (via email/fax) documentation to the Mortgage Consultant (see * items above)
• Loan is submitted to the lender
• Upon loan approval, broker clears any conditions (if applicable) in order to move towards loan documents being prepared/drawn by lender
• Loan documents are drawn by lender and sent to the closing agent
• Closing agent contacts the borrowers to set appointment for signing
• Closing agent meets borrowers for signing (my closing agent comes to my borrowers home/place of business to make signing as convenient as possible)
• From the date the loan documents are signed, there is a three day Right of Recession period. So for example, if a borrower signs on a Monday, three full days must pass before the loan can fund. In this example borrower’s signing on a Monday would have their loan funded on that Friday.
• Loan funds and records

So if a borrower's loan funds in September, the first payment on the new mortgage wouldn't be until November 1st. This is applicable for any mortgage not just FHA. Depending on the month the loan funds, there will always be a full month that is "skipped" before the new payment is due.

Interested in starting the process?

Simply email me at laura@martellmortgage.com or complete a loan application at www.martellmortgage.com/loanapplication.  I'm available 24/7 via email to answer any questions you may have and determine if an FHA Streamline Refinance without an Appraisal is best for you!