Financing in Sacramento>Question Details

Jessica, Home Buyer in Sacramento, CA

I have been receiving lots of mailers regarding a FHA streamline refinance. I finally called one the other

Asked by Jessica, Sacramento, CA Thu Feb 5, 2009

day and am awaiting the paperwork so I can go over it with a fine toothed comb... My question is this just seems to be too good to be true! They are advertising no closing costs, no appraisal, no income verification no credit check. Just as long as I purchased my home within the last two years (I did), have had no income or job change (I didn't), and I occupy the home (I do). Is there something I'm missing?

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6
Nothing is "free"--either you pay for it upfront in cash, the cost is rolled into the loan amount or the cost is rolled into the note interest rate. But most or all lenders can offer "no-cost" loans, as in no out of pocket loans.

Find more info here: http://fhamortgageinfo.com/streamline-refinance-closing-costs/
0 votes Thank Flag Link Thu May 21, 2015
Mortgage bankers and brokers get paid from the lender by what is called Yield Spread (YSP) This is basically our commission we receive for selling you the loan. If a lender offers no closing cost loans like the FHA streamline, we are in essence paying for your closing costs with our commissions plus a little extra, because we do not work for free. Or, if you are willing to come to the closing table with some cash, you will usually get a lower rate, saving you money in the long term.

If you are interested or know anyone interested in refinancing or purchasing a property, please give me a call at 800-640-8798 Let us know Trulia sent you
0 votes Thank Flag Link Fri Jun 15, 2012
Jessica,
Did you get the paperwork and go over it? I'm closing a few streamline refinances this month, and there are closing costs associated with this loan. The advertisements typically talk about "out of pocket" closing costs. If there are no "out of pocket" closing costs, it's because the is bumping up the interest rate to pay those costs. It seems like the "sweet spot" where value and good rate meet is where the out of pocket costs are about 1 to 1.5x your monthly loan payment. Don't forget though, this is offset by the fact that you get to skip a mortgage payment when your loan closes, AND you'll get a refund from your old impound account. Bottom line is paying some closing costs out of pocket on a streamline means a much lower rate. This is an example, if you come in out of pocket with $2200, but it saves you an additional $100/month over the "no cost" loan, is it worth it? Ultimately that's a question you would have to answer, but if you're planning to be in the house more than 22 months then in my opinion it's worth it. We could plug in real numbers too if you'd like. I blogged on this topic at http://www.themortgageblogger.net/fha-streamline-refinance/ and am happy to answer any questions for you. Anthony
0 votes Thank Flag Link Wed Feb 11, 2009
Jessica:

I work with a lender who is doing these for many of my buyers. Although there is no 'out of pocket' cost to you (and it is true, they do not run a credit check), there is a cost to these loans. Usually, that cost is absorbed into the loan. This is how I understand it from the lender (and you will want to check your documents and ask your lender, specifically, how he is getting paid):
1. There is no credit check run.
2. There is no appraisal run.
3. As long as the FHA insurance is in place on your loan and you have been making your payments you qualify.
4. Each month, as you have made your payments, you have paid down the principle on your loan.
5. The new loan is written for the same amount as the old loan.
6. The difference between the original balance of your loan and the current balance of your loan is how the lender gets paid for doing this deal.
7. If that difference is not enough, then they will get paid by writing the loan at an interest rate slightly higher than the par rate, or the rate at which no points would be charged for the loan. (Example: FHA par rate is 5.0%, lender / broker writes the loan at 5.125%. This is how the yield spread is generated, which results in some money coming back to the lender / broker to pay for their efforts.)

The upside to you is best illustrated by an example. Let's say you bought your home a year ago, your loan was $300,000 and your interest rate was 6.5%. If you have the loan re-written at 5.125% you will save $262.74 per month on P&I or over $94,500 over a 30 year loan.

The down side to you. The loan is re-written to 30 years (which means, in the above example, you will be making payments on your home for 31 years before it is paid in full). The $3,353 you paid down in principle goes away, as your loan balance will be reinstated to $300,000. The $19,400 you paid in interest will offset the $94,500 savings, dollar for dollar, so your actual savings is $75,100 over the life of the loan.

All that being said, for many people this is still a good option. Sure, saving the full $94,500 would be nice, but I have yet to find a person who will turn down a gift $75,000 because it is not $94,000. And, in todays tough times, reducing your monthly expenses by $263 could buy a lot of hamburger and gasoline for the family. So, check out the documents, ask the right questions, make a fully informed decision and Dare to Dream.

Shel-lee Davis
Real Estate Consultant
RE/MAX Palos Verdes Realty
0 votes Thank Flag Link Thu Feb 5, 2009
I would suggest NOT relying on this reply as it has too many gross inaccuracies. Shel-lee, stick to what you know, real estate, not loans.
Flag Tue Aug 14, 2012
You got it. Go over it with a fine tooth comb. Refinancing generates costs somewhere, and while it could be a great idea to do it, check everything out carefully.
Web Reference: http://www.suearcher.com
0 votes Thank Flag Link Thu Feb 5, 2009
NOPE! We do them all the time. Streamlines are great!!!!!

Your rate will be a little higher because the broker needs to pay the closing cost from the yield spread the bank pays the broker.

It is a great program that you need to take advantage of now before they change the guidelines!
Web Reference: http://www.myallied.net
0 votes Thank Flag Link Thu Feb 5, 2009
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