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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
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.
Real Estate Consultant
RE/MAX Palos Verdes Realty
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!