July 11, 2013
FHA refinancing loans include something known as a Streamline Refinance option; the FHA Streamline Refinance allows a borrower with an existing FHA mortgage to apply for refinancing to lower mortgage rates or monthly payments. No cash back is permitted and no FHA-required credit qualifying is needed. Additionally, FHA Streamline loans have no FHA-required appraisal.
But what about situations where there IS an appraisal with an FHA Streamline Refinance? FHA loan rules for no-appraisal streamline loans describe the maximum loan amount as follows:
“The maximum insurable mortgage for streamline refinances without an appraisal cannot exceed the outstanding principal balance
• minus the applicable refund of the UFMIP,
• plus the new UFMIP that will be charged on the refinance.
Note: 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.”
Let’s compare that to the maximum loan rules for FHA Streamline Refinance Loans with an appraisal:
“Effective with case numbers assigned on or after April 18, 2011, the maximum insurable mortgage amount for a streamline refinance with an appraisal is limited to the sum of the outstanding principal balance of the loan being refinanced plus the new UFMIP.
The lender may not use an appraisal to increase the insurable balance, nor add
• closing costs
• discount points
• prepaid items, or
• other financing costs.”
FHA loan rules add, “The maximum insurable amount may only be increased through a credit-qualifying refinance with an appraisal”.
The terms on these two refinance packages–with and without an appraisal–look very similar. So why are we comparing them here? Because not that long ago, FHA Streamline Refinance loans with an appraisal had different terms and borrowers who explored their options before the rules change may assume that the same rules apply. They don’t. Under the OLD rules, which NO LONGER APPLY:
“The maximum insurable mortgage amount for a streamline refinance with an appraisal is the lesser of
• the existing principal balance
− minus the applicable refund of upfront mortgage insurance premium (UFMIP)
− plus closing costs, prepaid items to establish the escrow account, and the new UFMIP that will be charged on the refinance transaction,
or
• 97.75% of the appraised value of the property plus the new UFMIP that will be charged on the refinance.”
Those terms no longer apply. If you were considering your Streamline Refinance options prior to the rule changes, don’t assume the original conditions are applicable. Speak to a loan officer about whether you should consider a streamline loan with or without appraisal. In some cases, the lender may actually require an appraisal (and is free to do so). In others, the appraisal issue may not come up.
Do you have questions about FHA home loans? 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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