Impact of FHA Mortgage Insurance Cut?

[Richard C.]

So the FHA is cutting mortgage insurance from 1.35% to 0.85%.

http://www.usnews.com/news/articles/2015/01/08/pre...

How do you expect this to impact your businesses, if at all. I'd have to think it is good news for flippers working the first-time homebuyer segment. And maybe not such good news for people like me (SFR).

Thoughts?

[Mark F.]

@Amanda Sutherlin No problem! The FHA streamline is a refinance of an existing FHA mortgage into a new FHA mortgage. People take advantage of it to get a lower rate and payment, and under some circumstances, even shorten the loan term.

The beauty of the FHA streamline is that it's very easy to qualify for; there's little to no income or credit qualifying, and you don't need an appraisal. Even if you're currently out of a job or upside down in your home, you can still potentially refinance with an FHA streamline.

One little quirk of the program is that FHA doesn't allow you to roll any closing costs for the refinance into the new loan. So, either the borrower has to pay closing costs out of pocket, or the lender has to price the loan in such a way to cover most or all closing costs. As a loan officer, I usually priced the loan to cover most or all of the closing costs so the borrower didn't have to pay them. This will usually raise the rate a little bit, but another quirk in FHA financing pricing often means it could be very little. I was sometimes amazed at how much in closing costs I could absorb into the pricing with minimal impact on the interest rate.

Note that not a penny of cash out is allowed on FHA streamlines. In fact, you'll probably have to bring at least a token amount of money to closing (maybe a hundred bucks or something). Lenders usually structure the streamlines slightly short-to-close to avoid there being any cash out at closing.

The most important hurdle to qualifying is the 5% rule. To qualify for the streamline, the payment (just principal, interest, and mortgage insurance -  doesn't include taxes and HOI) must be reduced by at least 5%. 

If you've got an FHA loan right now, give your lender a buzz and see what they can do. If you got the loan within the last few years, you might be able to get a great streamline deal. Rates are down right now and FHA is about to cut the annual mortgage insurance premiums that are paid as part of your payment, which could mean even more savings.

Let me know if you have any other questions!