FHA Streamline: How to Qualify
By james on June 04, 2011
I should have subtitled this post: "Why you might NOT Qualify"
The FHA mortgage continues to be one of the most popular mortgages in Portland. The reason for this is undoubtedly its FLEXIBILITY. The FHA loan is the easiest to qualify for, requires the least amount of cash, has the lowest credit requirements, allows for gift funds on the down payment, allows for non-occupying co-borrowers to fully count towards the DTI, the list goes on. But once you've GOT the FHA loan in place, the flexibility continues!
For one, the FHA loan is always "Assumable". This means that when you want to sell your home, you can also offer your mortgage to be assumed by the buyer (provided they qualify with the lender, etc). Imagine how much value that might have in 5 or 10 years when rates are at 7%... or maybe the 30 year fixed mortgage won't even EXIST in a decade?! How attractive will it be selling your home with 20-25 years remaining on a 4.5% fixed rate? So, assumability is a great value added feature on the FHA.
The other really cool thing about the FHA loan is the "FHA Streamline Refinance" program. The Streamline is nice because you don't necessarily have to get an appraisal (there is an option to get one with an appraisal, but in this market that hasn't been the smart option). So if you've lost some ground on your equity, you can still qualify to take advantage of lowering rates.... Except not really this year.
Even though FHA rates on the 30 year fixed are approaching 4.25%, many FHA loan holders with rates in the low 5% range won't qualify for any savings. The reason is because of the increase in the FHA mortgage insurance premiums that took place this spring. A year ago, FHA monthly MI was based on .55% of the loan amount annualized, and now that has more than doubled to 1.15% per year.
Long (and let's be honest: boring) story short- Even though the rates are lower, your payment won't be lower. I took a look at a refi for a client in a 5.25% FHA fixed rate. If we lowered him to 4.5% but added the NEW mortgage insurance structure, we only saved ONE DOLLAR per month! You wouldn't even be able to get the loan if you wanted! The FHA streamline requires a minimum payment improvement.
So I know many of you reading this have received very official looking and super attractive refinance offers in the mail, let me assure you that its probably too good to be true. If you would like a quick analysis on YOUR FHA loan to see if you would qualify for the streamline program, please do not hesitate to fill out the "online rate quote" form found at the upper right of this site.