PROS AND CONS OF THE FHA STREAMLINE REFINANCE

FHA mortgages picked up where subprime mortgages left off after 2007 when subprime became a dirty word.  FHA had limited down payment requirements, no minimum credit score requirements, and had attractive interest rates.  Ohio, as well as the rest of the country saw FHA originations double from 2007 to 2008.

4 years later, Ohio residents with an FHA mortgage may be wondering what options are available.  The most common option is one of the simplest loan programs, the FHA Streamline Refinance.

The FHA Streamline Refinance comes in a few different flavors, but we'll just cover the most common version, the FHA Streamline Refinance WITHOUT APPRAISAL.

Below are the PROs and CONs of this program:

PROs

• No appraisal is required.  In the current housing market, this is simply the biggest and best option of this loan program.  Home values in Ohio have declined faster than we have paid down our mortgages.
• No income documentation.  Now don't get this confused with the "liar" loans.  Lenders will verify that you are working, but do not require documentation to calculate your monthly income.  Why?  Simple, FHA already insures your mortgage, so an FHA Streamline Refinance will put you in a better financial position, which makes it easier to pay your mortgage.
• Lower your interest rate. Simple, lower interest rate = lower payment.
• Take your Adjustable Rate Mortgage to a Fixed Rate mortgage.
• 15 year terms.  FHA loans with a 15 year term have lower mortgage insurance requirements.

CONs

• Cannot lower the term of your mortgage.  If you originally took out a 30 year fixed rate mortgage, your new mortgage will have to be a 30 year fixed rate mortgage.
• FHA program changes.  Chances are when you originally took out your FHA mortgage, you paid 0.5% mortgage insurance (equates to roughly 0.5% X loan amount / 12 months) or $41.67 per month on a $100,000 loan amount.  You also paid an Up Front Mortgage Insurance Premium of 2% or possibly 1.5%.  Now FHA requires an Up Front Mortgage Insurance Premium of 1%, but the monthly mortgage insurance has increased to 1.10 or 1.15% (depending on loan amount compared to last appraised value).  This negates alot of the benefit that a homeowner may have seen.
• FHA mortgage insurance starts over. Most FHA loans come with mortgage insurance.  FHA requires that mortgage insurance to be paid for a minimum of 60 months. After the initial 60 months, once your loan balance reaches 78% of the homes value, the mortgage insurance will drop off.  When you close on an FHA Streamline Refinance, that 60 month requirement starts over.

Every situation is different, and it only takes a few minutes to determine whether an FHA Streamline Refinance without appraisal could benefit you.

OHIO RESIDENTS, GET READY FOR MORTGAGE COSTS TO GO UP

The payroll tax cut extension that Congress agreed to extend on December 23rd will have far reaching implications.  One of those implications is increasing the cost of a mortgage for those of us in Ohio and across the country.

The loan guarantee fee paid by Fannie Mae and Freddie Mac will increase by 10 BPS (or 0.1%).  Fannie Mae and Freddie Mac will be passing this additional cost along to the consumers.

Wells Fargo has already released a memo specifying the changes that they are implementing going forward.

An Ohio resident purchasing (or refinancing) a property with a $200,000 mortgage will see the cost of their mortgage increase by as much as 80 BPS (or 0.80%).  This translates to either $1600 more in closing costs, or taking a higher rate by an estimated 0.125% which would increase the monthly payment by roughly $14.50.

Other lenders are soon to follow.  These changes go into effect with loans closed after February 29, 2012.  But it will start effecting 45 and 60 day rates as soon as this week.  Due to the lower interest rates, many lenders are backed up in underwriting necessitating 45 or 60 day locks currently.

Keep this in mind while shopping for a mortgage in the coming weeks.

OHIO HOME BUYERS, SHOULD YOU GET A HOUSE INSPECTED?

With home sales picking up in a majority of Ohio, prospective buyers will look for any advantage they can to edge out the competition.  One of those may be waiving inspection contingencies.

Experienced homeowners and first time homebuyers alike, should make an educated decision on whether or not to get a home inspection.  There are many unseen situations that could pose a hit to your wallet if not more serious complications.  Here are just a few common unseen problem areas:

1. Furnace - unless you are experienced enough to determine that it is functional, you could be walking in to a nice new house that needs a new furnace.

2. Mold - crawlspaces and basements could have mold present.  Crawlspaces are especially worrisome unless you know what you are looking for and forge into the unknown, you may never have an idea that it is present.

3. Poor surface grading and drainage - this simple issue can cause a wide array of secondary problems from cracked slabs to water leaking into the basement.  If the weather has been warm and dry, you may never know that water leaks into the basement.

4. Roof damage - Asphalt shingle roofs only last 15-20 years.  A leaking roof can lead to water damage on the interior of the home.

The risk to waiving your inspections can be minimized if the sellers provide you with copies of recent home inspections that they had completed.  However, most inspection reports recommend further inspections.  A second opinion, from another home inspector, can't hurt.

Overall, the cost of a home inspection could be drastically cheaper than any unknown repairs that require immediate attention after you purchase the home.

Can HARP help Ohio Homeowners?

First off, what is HARP?

It stands for Home Affordable Refinance Program, and was designed to help homeowners who have been unable to obtain traditional refinancing because the value of their home has declined.

So who offers HARP?

The majority of lenders offer HARP loans, although each lender will differ in their guidelines.

How can a HARP loan benefit Ohio homeowners?

As we all know, home values have tanked in the last few years.  Many people purchased homes with 5%, 3%, NO Downpayment over the last 3-5 years.  Assuming that your home has lost 5% of its value, you probably owe close to what the home is worth.  Not many options available for Ohio Homeowners in that situation.  That is where HARP comes in.

There are 2 versions, one for loans that are currently insured by Fannie Mae, and one for loans that are currently insured by Freddie Mac.  The guidelines are fairly similar between the two.

Lets say your current loan is insured by Fannie Mae, and you owe $200,000 and the home is worth $180,000.  That would put you at 111% financing (or Loan to Value).  You would be eligible for a HARP Refinance utilizing Fannie Mae's DU Refi Plus program.

What are the rates like?

Rates for the HARP program are no different than those for a normal Conforming refinance.  There are some different adjustments based on credit score, loan term (30 year, 20 year, 15 year, etc.), and for the Loan to Value (loan amount compared to value of the home).  Each situation is different, and you would be best served speaking to a Loan Officer regardign your specific situation.

What about closing costs?

Same as above, the closing costs for a HARP refinance are no different than those for a normal Conforming refinance.

Whats the catch?

There isn't one. 

One thing I pay close attention to for my clients in Ohio is the overall benefit.

If someone has been in there 30 year fixed loan for 3 years, it wouldn't make sense for them to go back to a 30 year (losing 3 years) and saving $50 per month.

However, if we could take them to a 25 year fixed loan, with little to no closing costs and save them $75 per month.  That is a win win.  Knock 2 years off the loan, save $75 per month, with little closing costs.

As with any loan program each situation is different.  You would be best served by contacting a Loan Officer and discussing your specific situation to get the best information.

PURCHASE A HOME IN OHIO - DO's and DON'Ts

If you are in the market to purchase a home in Ohio, here is a few things to keep in mind before looking for a home, and during the loan process:

DO

Contact a Loan Officer - they can help you navigate the mine field of mortgages better than any article you will find on the internet.

Keep your paystubs - Generally lenders will want to see at least your last 30 days worth of paystubs.

Keep your bank statements - Lenders will want to review your last 2 months bank statements. Depending on what bank you use, online print outs may not contain all the information that your lender wants to see.  

Document any deposits - lenders will want documentation on any deposits that aren't direct deposit.

Pay all your bills on time - even one 30 day late can derail your loan.

Pay down your credit card balances - one of the easiest ways to increase your credit score is to pay down credit card balances to less than 30% of the limit.

DON'T

Make any large purchases - lenders will re-pull your credit shortly before closing, and any new debts will require additional documentation and will be calculated into your debt to income ratio.

Change jobs - sirens and red flags will go off with your lender. If there is a job change in your near future, discuss it with your loan officer.

Apply for new credit - applying for new credit (cell phone, auto loan, credit cards, etc.) can lower your credit score. Close credit card accounts - this could have a negative impact on your credit score.  

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