February 25, 2011
There have been several changes to the rules affecting FHA refinancing loans. Subordinate liens, the waiting period borrowers must go through before applying for an FHA refinancing loan, and other important areas have all been affected by new rules designed to protect the FHA loan program and tighten control in certain areas of the refinancing process. For example, borrowers are now required to be current on their mortgage the month prior to and for the month of the closing date.
One important change to FHA refinancing loans affects any FHA borrower applying for a non-credit qualifying FHA refinancing loan such as a streamline refinance. Changes to the old FHA policy on streamline loans include a prohibition from using an appraisal to “increase the insurable mortgage balance beyond the sum of the outstanding principal balance and the new Up-Front Mortgage Insurance Premium.”
The next line in that paragraph from the FHA is probably the most significant for many interested in FHA streamline refinancing loans; “The mortgagee may not add closing costs, discount items, prepaid items, or other financing costs to the new loan balance.”
You read that correctly–to include discount points, closing costs and other expenses to a VA refinancing loan, it must be a loan product for which new underwriting takes place including a credit check, etc.
The FHA policy guidance on this issue states, “Mortgagees may only increase the insurable balance beyond the sum of the outstanding principal balance and the new Up-Front Mortgage Insurance Premium by using a credit qualifying refinance with an appraisal.”
The FHA now requires a credit-qualifying refinancing loan and a new appraisal for any refinancing loan that would increase the “insurable balance beyond the sum of the outstanding principal balance and the new Up-Front Mortgage Insurance Premium”. This change in the rules is “effective 60 days from February 14” according to the FHA.
These changes can definitely affect the plans of a homeowner interested in getting an FHA refinancing loan–especially where the closing costs and other items are concerned. If you were planning to fill out an FHA refinancing application, you’ll need to examine and prepare your credit accordingly if you need to finance those costs.
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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