Help with FHA Streamline Refi

[Kasuito39]

We would appreciate any feedback with the FHA streamline refi strategy below. 

Currently have a rate of 2.875 FHA loan with a balance of 522k that was closed 10/2020. Current home value is 560k. Thinking of going with a FHA Streamline after making 6 payments in April 2021. Fico middle mortgage score are at 675 with low DTI. 

1. What strategy can we use to skip two payments (@3175k) and use the funds for home improvements? When would we ideally need to close? 

2. Since we intend to use FHA streamline refi, does the lender keep our refunded UFMIP (@9k) or do we keep it? Can we use UFMIP towards closing costs? 

3. Assuming our Escrow balance at closing  would be @3k, is it refunded to us? If so, do we pay the new Escrow as part of closing? If not, does lender keep the Escrow amount to use for closing costs?

4. We intend to use our current lender so if rates hoover around 2.5 is that a significant savings? 

5. Is FHA Streamline an optimum strategy to get some cash out as opposed to going with a FHA renovation loan? 

[Anonymous]

Hi There,

Please see below responses to your questions:

1. You cannot skip payments with a streamline. All payments must have been made within the month due. If you go into forbearance it will trigger us to require that you end forbearance and even then you have to have made 3 payments after exiting forbearance before we can consider you for a streamline refinance.
2. Refunded MIP is generally credited in the details of transaction and should be a line item on your CD. If you don't roll the refunded upfront MIP into your loan, then yes you you would get a check. I can't remember if you have to petition HUD for it or if the lender can disburse it for you as I don't really deal with the fees side of the transaction.
3. Most payoffs will net the escrow account in other words giving you a credit to the total payoff. If you don't, then yes your impound account would be refunded to you after closing.
4. On a half million dollar mortgage you'll see decent savings, but your recoupment period will be longer. If you want to know guidelines, we generally look for recoupment within 48 months. You can calculate this by adding up your loan costs (not your impounds like taxes/insurance just the origination charges, fees, etc) and dividing that by the amount of money you save going from your old payment to your new payment. For example, let's say your closing costs were $2,400 and your payment is going to drop $200 a month. You would have a recoupment period of 12 months which is excellent. FYI on pricing government loans should be around 2.375% right now but I know rates did go up so that may be par now. Shop your rate always.
5. FHA streamlines are the worst way to get cash out, they're designed to be very quick no-cash out limited documentation refinances. You're capped at $500 incidental cash to borrower on a streamline. A renovation loan only allows you to finance improvements into the loan they will also not allow cash out. If you want to cash out equity, a cash out loan will be needed and by your equity you are way outside the LTV limits for a cash out transaction.

Let me know if you have any other questions!

[Kasuito39]

@Anonymous Thank you so much for your prompt response. 

Just to provide more clarification:

1. What strategy can we use to skip two payments (@3175k) and use the funds for home improvements? When would we ideally need to close? What we are looking to do is defer our payments 2 months after closing on the Fha streamline. For example if we close before May 15th and not make the May payment, our new payment wouldn't be until July saving two months. Is this possible? 

2. So with the savings of the two months payment + UFMIP credit refund + Escrow impound refund for old loan = Net cash amount we can use for the renovation. Is this correct? 

[Mortgage-Specialist]

You do not appear to be an FHA streamline candidate. In order to do a streamline, your interest rate MUST be reduced by a minimum of .5% (half of a percent) which means your rate needs to be 2.375% or lower.

Technically, 2.375% is available but the idea of a streamline is to increase the interest rate high enough to so that there is enough lender credit to cover title fees and escrows. Theres no way that can be accomplished with a 2.375% rate unless you come out of pocket with a decent amount of money.

[Mortgage-Specialist]

Another point to add regarding FHA Streamlines, you cannot increase the balance of the loan. Whatever the payoff amount is on your current loan - the new loan amount must be the same loan amount or less than the amount of your current loan payoff amount. This means you cannot roll in any fees or escrows. This is why it's lenders will offer a higher rate to offer a lender credit so that it covers the costs. Or you can just pay closing costs out of pocket, which in your case doesn't seem to make a whole lot of sense

[Kasuito39]

@Mortgage-Specialist thank you for the feedback. 

While discussing FHA Streamline refi options with current and another lender,  there was consensus that the reduction of .5 was not the only qualifying attribute as long as the overall net tangible benefits was within .5 range. In this case, one of the lenders expressed the willingness to pay closing costs to win over our business but was unable to offer any additional credit. To achieve this, they would use the UFMIP at 68% refund and part of the Escrow to cover  closing costs + there own credit for a reduced rate.

At this point, we are keeping our options open. We can also wait until December 4 yrs post BK 7 and look for conventional refi but we will need to paydown our current mortgage to attain at least 10% equity range and for go home renovations. 

[MauiMan85297]

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@Kasuito39 wrote:

We would appreciate any feedback with the FHA streamline refi strategy below. 

Currently have a rate of 2.875 FHA loan with a balance of 522k that was closed 10/2020. Current home value is 560k. Thinking of going with a FHA Streamline after making 6 payments in April 2021. Fico middle mortgage score are at 675 with low DTI. 

1. What strategy can we use to skip two payments (@3175k) and use the funds for home improvements? When would we ideally need to close? Late June is the earliest you can close, lets say it's a July closing you would get to skip July and August-Sept first payment.

2. Since we intend to use FHA streamline refi, does the lender keep our refunded UFMIP (@9k) or do we keep it? Can we use UFMIP towards closing costs? You would not be refunded $9k, FHA would still charge you 1.75% of new loan amount and refund you a portion you haven't used when you re-fi'd 10/2020, the shorter time you've held the loan the larger MIP refund

3. Assuming our Escrow balance at closing  would be @3k, is it refunded to us? If so, do we pay the new Escrow as part of closing? If not, does lender keep the Escrow amount to use for closing costs? Your $3k would be refunded to you 2-4 weeks after your loan funds unless they used that balance to start up new escrow account, your escrows and closing costs of the new loan can't be added to the loan therefore lender must find enough credit/rebate to offset otherwise you have to come up with the difference.

4. We intend to use our current lender so if rates hoover around 2.5 is that a significant savings? No, your new rate must be 2.375% or better w/ credit (that's not happening on a SL)- savings would be approx $125/mo .

5. Is FHA Streamline an optimum strategy to get some cash out as opposed to going with a FHA renovation loan? At best you could save 2 payments + the $3k in escrow refund- if that's enough money to do reno then yes but just as long there is a NTB to qualify.

The other way is to do an FHA simple that will require to income qualify all over again and a new appraisal and to go after a 2.25% rate (it does exist) and now the costs and escrows can be rolled into the loan + you still get to defer 2 payments + escrow refund.

Just like above poster stated.... FHA SL you simply won't have a NTB to qualify.

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Currently have a rate of 2.875 FHA loan with a balance of 522k that was closed 10/2020. Current home value is 560k. Thinking of going with a FHA Streamline after making 6 payments in April 2021. Fico middle mortgage score are at 675 with low DTI. 

1. What strategy can we use to skip two payments (@3175k) and use the funds for home improvements? When would we ideally need to close? 

2. Since we intend to use FHA streamline refi, does the lender keep our refunded UFMIP (@9k) or do we keep it? Can we use UFMIP towards closing costs? 

3. Assuming our Escrow balance at closing  would be @3k, is it refunded to us? If so, do we pay the new Escrow as part of closing? If not, does lender keep the Escrow amount to use for closing costs?

4. We intend to use our current lender so if rates hoover around 2.5 is that a significant savings? 

5. Is FHA Streamline an optimum strategy to get some cash out as opposed to going with a FHA renovation loan? 

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[Kasuito39]

@MauiMan85297 Thank you for your response and feedback.

We never thought of going the straight FHA refi route as an option but the closing costs may be a deal breaker. 

However, with 3 yrs post BK 7 currently, not sure if it would be best to just wait and get the following products in December 2021 when we hit 4yrs post BK 7

1. Get a Hel or Heloc  

2. Conventional pmi refi

3. Potential higher appreciation can lead to over 10% in equity resulting in taking out straight convention refi w/out pmi 

4. Any other suggestions are welcome. 

[Anonymous]

I would just wait. If you're that close to the 4 year discharge date (not the filing date), conventional is a MUCH better product. You could do a HELOC but with rates this low it just really doesn't make sense to do a variable rate product.

[MauiMan85297]

Hold tight on the FHA loan as the rate is quite good and in 1 year you can do a Conventional loan and possibly remove PMI all together or at a such smaller monthly where it does finally come off whereas FHA it won't come off.