FHA Streamline Refinance

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I am suddenly receiving mail offering me a pre-approved FHA streamline refinance.  

I have a 30 year 4.5% fixed rate, and perfect payment history from when the loan originated exactly two years ago.  I currently owe about 92% of the value of the FHA appraisal at loan origination.  

I know I have a great rate, but I am also paying MIP.  I calculated that if I could get into a 15 year fixed at 3.5% and eliminate the MIP, then my monhly payment would only be slightly higher than my minimum now.  I normally pay more than the minimum anyway, so the net effect would be an early payoff and over 50 grand in interest saved.  

Tempting.

So, my questions:

1.  Is there a credit check for the streamline refi with FHA?

2.  Can I reduce the term to 15 years?

3.  Can I get rid of the MIP?

4.  Can I use my MIP refund to offset closing costs?

5.  Is streamline an actual FHA program or just some gimmick that the lenders are using to bait me in?

6.  My loan is currently with Wells Fargo.  Is there a reputable lender that anyone here recommends that might minimize closing costs?

7.  Is USAA an approved FHA lender?

8.  Is there a thread here that addresses all the FHA streamline program in detail?

9. How realistic is 3.5% for a 15 year loan?  

10. If I can't do a 15 year, could I lower my rate and eliminate MIP on my 30 year?

Lots of questions, I know.  Any help appreciated, thanks!

[ShanetheMortgageMan]

1.  Is there a credit check for the streamline refi with FHA?

Yes there is, but it's to confirm a credit score and other items, not to "credit qualify" or "ratio qualify" though.  Some lenders may impose their own overlay guidelines that do require you to credit qualify, but it is not an FHA requirement.

2.  Can I reduce the term to 15 years?

Yes you can, but not through an FHA streamline.  Any reduction in term requires a full credit quailfying refinance, appraisal, etc.  See: http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.6.C.4.b 

3.  Can I get rid of the MIP?

Yes you can, if you do a full credit qualifying refinance and your new loan-to-value is 78% LTV or less (that'd be current appraised value) and your loan term is 15-years or less.  If you can qualify, you can also refinance into conventional and have different PMI options.  I am not sure when you obtained your FHA mortgage, but the current mortgage insurance rates are http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/11-10ml.pdf so a new FHA mortgage may not have quite the benefit you are thinking.  You may read that and think, "Where in the world is Shane getting 78% LTV, 15-year term & no MI from?"  And you would be correct to ask that, because it's not on there, it is on http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_13063.doc under "Borrower Initiated Cancellation".

4.  Can I use my MIP refund to offset closing costs?

Yes you can.

5.  Is streamline an actual FHA program or just some gimmick that the lenders are using to bait me in?

It's very real I am sure you realize by now. 

6.  My loan is currently with Wells Fargo.  Is there a reputable lender that anyone here recommends that might minimize closing costs?

Any lender can minimize closing costs, it's a trade off.  Higher rate & lower closing costs vs. normal rate & normal closing costs vs. lower rate & higher closing costs.

7.  Is USAA an approved FHA lender?

I believe they are.  Approved lenders are listed at http://www.hud.gov/ll/code/llslcrit.cfm.  It doesn't include all places you can get an FHA from, as mortgage brokers are now individually approved through the lender who is funding the loan.

8.  Is there a thread here that addresses all the FHA streamline program in detail?

http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.6.C are FHA's guidelines on streamline refinances.

9. How realistic is 3.5% for a 15 year loan?  

It is definitely available.

10. If I can't do a 15 year, could I lower my rate and eliminate MIP on my 30 year?

No, details on that in answer #3.

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@ShanetheMortgageMan wrote:

1.  Is there a credit check for the streamline refi with FHA?

Yes there is, but it's to confirm a credit score and other items, not to "credit qualify" or "ratio qualify" though.  Some lenders may impose their own overlay guidelines that do require you to credit qualify, but it is not an FHA requirement.

2.  Can I reduce the term to 15 years?

Yes you can, but not through an FHA streamline.  Any reduction in term requires a full credit quailfying refinance, appraisal, etc.  See: http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.6.C.4.b 

3.  Can I get rid of the MIP?

Yes you can, if you do a full credit qualifying refinance and your new loan-to-value is 78% LTV or less (that'd be current appraised value) and your loan term is 15-years or less.  If you can qualify, you can also refinance into conventional and have different PMI options.  I am not sure when you obtained your FHA mortgage, but the current mortgage insurance rates are http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/11-10ml.pdf so a new FHA mortgage may not have quite the benefit you are thinking.  You may read that and think, "Where in the world is Shane getting 78% LTV, 15-year term & no MI from?"  And you would be correct to ask that, because it's not on there, it is on http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_13063.doc under "Borrower Initiated Cancellation".

4.  Can I use my MIP refund to offset closing costs?

Yes you can.

5.  Is streamline an actual FHA program or just some gimmick that the lenders are using to bait me in?

It's very real I am sure you realize by now. 

6.  My loan is currently with Wells Fargo.  Is there a reputable lender that anyone here recommends that might minimize closing costs?

Any lender can minimize closing costs, it's a trade off.  Higher rate & lower closing costs vs. normal rate & normal closing costs vs. lower rate & higher closing costs.

7.  Is USAA an approved FHA lender?

I believe they are.  Approved lenders are listed at http://www.hud.gov/ll/code/llslcrit.cfm.  It doesn't include all places you can get an FHA from, as mortgage brokers are now individually approved through the lender who is funding the loan.

8.  Is there a thread here that addresses all the FHA streamline program in detail?

http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.6.C are FHA's guidelines on streamline refinances.

9. How realistic is 3.5% for a 15 year loan?  

It is definitely available.

10. If I can't do a 15 year, could I lower my rate and eliminate MIP on my 30 year?

No, details on that in answer #3.

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Shane, thank you for your very thorough reply. I appreciate you taking the time to put together this information for me.

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Looks like the new MIP rate is going to be the killer on this one, negating any benefit of a rate drop.  The MIP in my case would almost double!  Guess someone has to pay for all those defaults.

Well, it was worth a try.  Thanks again.

[ShanetheMortgageMan]

You are welcome.

[p-]

I contacted the loan officer at Wells to see what their rates were like.  They said the best that they could do was 4.25 on a 30 y fixed, and 4.0 in a 15 year.  On a 4.25% fixed with the added MIP my payment would go up by six dollars, and my payoff date would be two years later.  I would save 7k in interest, but that's not enough to justify the hassle.

I ran the numbers and if I can get a 15 year at 3.5% or lower it makes sense.  I would have a payment just a couple hundred over what I normally pay now, and save almost a hundred grand in interest by the end.  Otherwise, I am better off just paying more to my current loan and getting it paid off early.

Guess I'd better hold for now.  I might wait it out for six months or so and see what the market does.  I'll keep an eye on interest rates and if they dip low enough I'll make a move.

[ShanetheMortgageMan]

4% seems about right with no points - with the 15-year terms they generally only go in 1/2% rate increments (since the .125, .250, .375, .625, .750, and .875% increments are all horribly priced).  3.5% would probably cost in the neighborhood of 2 points.