FHA Streamline Refinance Process?

[wndrwmn78]

Hello! I've been researching the FHA refinance posts, and hope that I am not asking something that has already been answered.

I currently have an FHA 30-year fixed rate mortgage, at 6.25%. I would like to do a streamline FHA refinance, with my original mortgage lender quoting me 5%. She also quoted about $2000 closing costs.

What I'd like to know is how the actual loan process works, in terms of the other fees. Even after going through the home-buying process the first time, I swear I am just incapable of understanding how all of the fees get paid! What would my other up-front costs be? Would I have to pay the taxes, homeowners insurance, and PMI all up-front again? Or would I be refunded those from the original loan, and they cancel each other out, leaving only the actual closing costs?

Any help you can give me in layman's terms is greatly appreciated.

[ShanetheMortgageMan]

There are 2 variations of the FHA Streamline, with an appraisal & without.  The more common one (particularly today) is the one without, as today home values are still declining if you opted to get an appraisal you could be shooting yourself in the foot unless you absolutely know the the value will be higher than what you purchased it for.  So I will describe the streamline process without an appraisal.

The first thing you'd determine is what the maximum your new loan amount can be.  

Remember on an FHA loan there are two loan amounts, there is the base loan amount and then the full loan amount with the financed upfront mortgage insurance premium (UFMIP) in it, so a $100k base loan amount (with a 1.75% UFMIP fee) is a $101,750 full loan amount.  On a streamline refinance without the appraisal the new FHA loans base loan amount can be up to the original full loan amount, then the UFMIP is added on top of that.

 So using the previous figures, the new base loan amount could be $101,750 and then the UFMIP (which is 1.5% on a streamline) is added to that, so it'd increase to $103,276 ($101,750 + $1,526.25, change is always paid at closing not financed).  Since the UFMIP is almost always financed let's just use the $101,750 figure - that amount is what you will have to pay off your existing mortgage plus any closing costs with.  But it doesn't stop there, you will also likely get a partial refund of the UFMIP you paid when you obtained your current FHA loan.  That partial refund is typially applied as a credit towards your new closing costs (there are other situations but I'll just stick with the one you'd likely be in) as well.  The amount of the refund depends on how long you've had your FHA mortgage for, it starts at 80% of the UFMIP amount and declines by 2% each month until 10%...  so for the first 36 months you are eligible for a refund.

FHA as you know requires an escrow account to be set up, so you will have to set that up with the new lender, and the amount in your current escrow account balance will be refunded to you by your current lender usually within 30 days of them getting paid off.  When you refinance with the same lender sometimes they can just apply your current escrow balance as a credit towards the new one, limiting the amount of money needed to be brought in, but not all lenders do that.

Usually the amount of money you bring in at closing is equivalent to 1 month's payment, and since on a refinance you skip a month's payment (refinance with a closing date of 5/25 has a 1st month payment of 7/1) you can think of it as you are paying that months payment you skip at closing.  FHA loans always charge interest through the end of the month regardless of the day you are paying them off, so paying an FHA loan off on 5/10 you will still be charged interest from 5/11 through 5/31, no way around it, and since the new lender starts charging interest from day the fund the new loan, so you also should be aware that you need to close at the end of the month to reduce the amount of double interest you'd pay.  On a refinance of an owner occupied property you have a 3 day right to rescind on the loan after you sign, the day you sign doesn't count and neither do holidays or Sundays, so signing on a Tuesday or Wednesday in a week with no holidays the next available day to fund would be the following Monday.  Don't have the funding on the very last day of the month though, in case something goes wrong you are stuck funding the following day of the 1st and then paying double interest for an entire month.

That is pretty much the important items to know regarding the closing costs & "funds to close" calculation on an FHA streamline refinance without an appraisal.

Message Edited by ShanetheMortgageMan on 04-23-2009 07:10 PM

[wndrwmn78]

Thank you so much! Your response is more informative than I had even hoped for. Please let me try to break it down as I'm understanding it, to make sure that I have it correct:

Since the new loan can START at the original loan (which was the base plus the PMI), the difference between what I still owe, and what the new base loan can be, will help me pay closing costs - correct? Additionally, the PMI will again be rolled into the loan, so I will not have to bring cash to the table for that - correct?

Even more, since the original PMI will be partially refunded to me, I can use that refund to help cover closing costs? So having the new PMI rolled into the loan with the old PMI refunded to me is kind of like a backdoor way of rolling the closing costs into the loan?

You stated that "Usually the amount of money you bring in at closing is equivalent to 1 month's payment" - is that after everything I mentioned above? The difference will normally be that amount? Does that include the prepaid interest?

A lot of my confusion has always been with how the property taxes and homeowner's insurance are paid at closing. Will those balances ALSO be refunded to me to pay them again with the new loan, or do they just stay put since the property is the same? 

Thank you again for your help, and please excuse my stupidity with all of this! I am generally an intelligent person, but this is one of those things that for some reason I cannot wrap my brain around. 

[ShanetheMortgageMan]

Welcome.  Correct on everything.  The amount of money you bring in is after all calculations are done.  Taxes/insurance are collected again by the new lender and your current escrow account is refunded by your curent lender.

[wndrwmn78]

I can't believe I actually understood correctly...okay, one more question: say that I close on this refinance on May 26th...so then how does May get paid? I know that my first payment on the new loan wouldn't be due until July 1st, which is back-paying for June...but if my loan is switching over do I still pay my old lender on June 1st, or do I have a double payment on July 1st...or is it included in closing?

Thanks again!

Message Edited by wndrwmn78 on 04-24-2009 07:11 PM

[medicgrrl]

The interest for May will be calculated into the payoff.  You will not make a payment to your existing lender on June 1st.

[wndrwmn78]

So I'm still a little confused (sorry!) - does that mean what I would have paid for May gets lumped in with what the new bank pays the old bank, or does that payment become part of my closing costs?

I'm just confused since the new loan would be for the balance of the old loan, so it would be uneven if the new bank paid that to the old bank...

I know I'm just missing something here, so my apologies in advance!

[itsjustmeibe]

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@wndrwmn78 wrote:

So I'm still a little confused (sorry!) - does that mean what I would have paid for May gets lumped in with what the new bank pays the old bank, or does that payment become part of my closing costs?

I'm just confused since the new loan would be for the balance of the old loan, so it would be uneven if the new bank paid that to the old bank...

I know I'm just missing something here, so my apologies in advance!

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If you close on May 26, you will have already paid your May payment to your old lender (around May 1st).

The payoff amount would include per day interest from May 1 to May 26, (you won't see that on your settlement statement). You will see on your closing statement that the interest from May 26 to May 31 is being paid to new lender since they bought the loan as of May 26.

Your May payment is for the period in April that you stayed there, you pay your mortgage in arrears.

Whether you pay May or not is reflected in your payoff amount at settlement, if you don't pay May, the payoff quoted will be higher and your loan amount will be increased or the required cash at closing will be increased.