Do You Have An FHA Loan And Want To Take Advantage Of Today's Low Rates? A Streamline May Be What The Doctor Ordered.

The FHA-insured mortgage market share has increased nearly 10-fold since 2006, indoctrinating first-time FHA borrowers across California, Arizona, Nevada and everywhere else into the sometimes-rewarding world of FHA mortgages.

As mortgage rates fall, demand for FHA Streamline Refinances is off the charts.

Now, if you've never heard of an FHA Streamline Refinance, you're not alone. It's a program exclusive to FHA homeowners and that a club that's been historically pretty small. As a result, FHA Streamline Refis have tended to slip past the American Consciousness.

That doesn't make them less relevant, though.

For FHA homeowners, there are 3 major reason why the streamline refinance program can be superior to traditional, Fannie Mae-like mortgage refinance.

1. It's consumer-friendly : The FHA won't approve your refinance unless the new mortgage payment is less than your current one

2. It's housing market-friendly : The FHA doesn't ask for an appraisal of your home and doesn't care if you're underwater

3. It's cost-friendly : If you've had your loan less than 5 years, the FHA refunds a portion of your original closing costs directly to your bottom-line

So, although you may have been shoe-horned into FHA financing when you bought your home -- and maybe that upset you -- whenever mortgage rates start to fall , you'll be super excited about your FHA Homeowner status.

There's a host of differences between an FHA Streamline Refinance and a traditional conforming mortgage refinance, actually. For one, FHA Streamline refinances don't require proof of income from the homeowner -- no paystubs, no W-2 statements, no tax returns. Instead, the homeowner must just prove that he's still employed.

A phone call into Human Resources can accomplish that.

This "No Income Verification" nature of an FHA Streamline Refinance is in keeping with the FHA's over-riding philosophy that homeowners making payments at a higher mortgage rate should logically be able to make payments at a lower mortgage rate.

It's the same for the "no appraisal" requirement. Unlike conforming mortgages that are securitized and sold via Wall Street, the Federal Housing Authority is the only insurer and guarantor of FHA home loans. Because of this, the FHA isn't concerned about whether its borrowers' home lose value -- it's on the hook for the loan either way.

The FHA is more concerned about helping FHA homeowners get payment relief because it knows lower housing payment makes default less likely in the long-run.

However, getting approved for an FHA Streamline Refinance isn't a rubber stamp. It does come with some obstacles.

* Homeowners must be current on their mortgage payments. No 30-day, 60-day, or 90-day delinquencies are allowed from the last 12 months.

* Homeowners must have at least 6 months of history paying on their current mortgage.

* "Instant refis" are not allowed. The new loan size can't exceed the original size of the FHA loan being replaced

In addition, some lenders -- but not all -- impose minimum credit score requirements.

As of May 2009, the most common minimum credit score for an FHA Streamline Refinance is 620. Not every lender has this requirement, though. At least one investors through which I lend, for example, allows credit scores down to 500. Contact me directly if you've been told your FICO is too low for an FHA Streamline Refinance -- I can help.

And then there's the closing costs.

Every home loan carries fees and FHA Streamline Refinances are no different. There's title charges, underwriting charges and the other "normal" refinance fees. There's also the FHA's upfront mortgage insurance premium, paid at every FHA closing. MIP often equals one-and-a-half percent of the loan size and rolled right into the mortgage.

However, because the size of an FHA Streamline Refinance home loan can't exceed the starting size of the FHA loan it's replacing, up-front mortgage insurance premiums can sometimes put homeowners in a position where cash is required at closing. Opting for a "no cost" FHA Streamline Refi can diminish the likelihood of this occurring, but there's no promise.

Thankfully, the FHA takes a pragmatic approach to upfront MIP.

If you're current FHA mortgage is less than 36 months old, the FHA will refund a portion of your original upfront mortgage insurance at the time of closing, applying it directly to your settlement statement.

The refund chart is above. Similar to driving a car off the lot, the premium's refund value drops 20% in Month 1 after which it reduces by 2 percent per month until the 10 percent level in reached in Month 36.

A FHA homeowner that paid $3,000 in upfront MIP six months ago, therefore, would be entitled to a $2,100 refund. After 9 months, the refund falls to $1,920.

In three years, the FHA MIP refund falls to $300.

Now, because of how the FHA mortgage insurance refund process is structured, it should be obvious that the FHA compels its borrowers to refinance into lower rate mortgages as soon as possible. The longer that homeowners delay on the decision to refinance, after all, the lower their FHA rebate becomes and, therefore, the higher will be their closing costs.

Again, this approach is consistent with the FHA's goal of getting its homeowners' mortgage payments down whenever possible. The FHA incents people to "act now" as opposed to trying to wait out the market.

FHA streamlines have been especially popular lately and with FHA market share continuing to grow, they'll be a helpful vehicle for FHA homeowners looking to lower their monthly payments. If you're in want of some FHA advice or need help calculating what your FHA Streamline Refinance MIP refund will be, reach out to me anytime. My contact information is below.

Wade Thompson, 760-643-4152

2009 FHA Loan Limits

The government published the 2009 FHA Loan Limits for all 3,141 counties in the United States. As expected, loan limits will recede from their temporary levels of 2008.

As in 2008, the 2009 FHA loan limits are based on the number of units in the property -- from 1-unit to 4-unit:

1-unit : $271,050
2-unit : $347,000
3-unit : $419,400
4-unit : $521,250

Now, it's important to note that the new FHA loan limits only apply to most areas of the country -- Hamilton County, Ohio, for example. But, in other areas -- classified as "high cost" areas -- the FHA will insure higher loan sizes in 2009 than the 1- to 4-unit figures listed above.

"High cost" areas are calculated using mathematics and typical home prices.

If a county's median home price multiplied by 1.15 is larger than that FHA loan limit listed above, the product is that county's new 2009 FHA loan limit, not to exceed $625,500. In California, therefore, high cost areas include Orange County, Los Angeles County and of course, San Diego County. San Diego's loan amounts are:

1-unit: $546,250
2-unit: $699,300
3-unit: $845,300
4-unit: $1,050,500

And don't worry about doing the math yourself -- you can download this county-by-county PDF of 2009 FHA Loan Limits as a good reference point.

FHA Makes Home Ownership More Affordable - In a Week from Today

Earlier this year -- and for the first time in its history -- the FHA changed its funding fees and mortgage insurance structure.

Effective October 1, 2008, it's repealing those changes.

Partly to keep FHA home loans affordable, and partly to comply with new laws, the FHA is rolling back its up-front fees and ongoing mortgage insurance requirements and replacing them with new ones.

The new up-front FHA fees are as follows:
* 1.750% : All purchase and "standard" refinances
* 1.500% : All "streamline" refinances
* 3.000% : All FHASecure programs for delinquent mortgagors

These fees are paid as a one-time cost at closing, and are calculated by multiplying the loan size by the fee. A $200,000 FHA purchase, for example, now carries a $3,500 one-time charge.

Ongoing mortgage insurance requirements have changed, too. These changes are based on the loan type and the amount of equity in the home.

* 15-year fixed with 90% borrowed or less: 0.000% annually
* 15-year fixed with more than 90% borrowed: 0.250% annually
* 30-year fixed with 95% borrowed or less: 0.500% annually
* 30-year fixed with more than 95% borrowed: 0.550% annually

Mortgage insurance premiums are calculated by multiplying the initial loan size by the annual premium. The same $200,000 FHA purchase outlined above, using a 95% 30-year fixed mortgage, would require a monthly mortgage payment add-on of $83.33 until the loan is paid in full.

FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA guidelines have remained relatively loose. FHA allows 3.500 percent downpayments on purchases, for example, and allows "cash out" refinances to 95 percent.

Fannie Mae and Freddie Mac do not.

Mandatory FHA Loan Fees Increase For Some, Fall For Others

For the first time in its history, the FHA changed its funding fees and mortgage insurance structure this week. FHA-insured home loans are now subject to a risk-based pricing adjustment, as shown by the table above.

Because of risk-based pricing, FHA home loans are now more expensive for borrowers with less-than-ideal credit profiles, and less expensive borrowers with perfect ones.

Prior to the changes, most FHA borrowers paid an up-front fee of 1.500 percent, plus on-going annual mortgage insurance payments equal to one-half-percent on the amount borrowed.

FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA program guidelines have remained loose. FHA allows 3 percent downpayments on purchases, for example, and allows "cash out" refinances to 95 percent.

Fannie Mae and Freddie Mac do not.

FHA Institutes Risk-Based Pricing. Owners Of Multi-Family Properties Get the Best Deal

The FHA rolled out risk-based mortgage pricing this week, matching steps that Fannie and Freddie took earlier this year. In its press release, the FHA lists some exceptions, including 15-year mortgages.

Prior to the risk-based changes, FHA home loans were usually accompanied by an easy-to-remember fee schedule of 1.500 percent of the loan size due at closing and an ongoing annual mortgage insurance premium equal to 0.500 percent of the original loan size.

The new fee schedule is not quite so clear. "Ideal" borrowers are rewarded for using FHA-insured mortgages. "Risky" borrowers are penalized.

Of course, rewards and penalties are relative. Versus conforming mortgages -- ones guaranteed by Fannie Mae and Freddie Mac -- home buyers using FHA will generally get worse rates and pay higher fees over the long-term. This is especially true when credit scores are low and/or downpayments are small.

One notable exception: home loans for multi-unit properties.

The FHA does not impose additional loan-level pricing adjustments for 2-unit, 3-unit or 4-unit properties. Fannie and Freddie, by contrast, impose hefty multi-unit property fees of up to 1.000 percent.

This detail -- for the right homeowner -- could render FHA much more attractive, even if FHA mortgage rates are slightly higher than their conforming counterpart. As always, choosing the right mortgage product is rarely black and white.

Sometime soon, though, expect risk-based mortgage pricing will get fuzzier, accounting for additional details than just what's in the FICO-and-LTV Matrix shown above.

Until it does, though, remember this page. It's a lot easier to make sense of the chart than it is to translate official government speak on FHA adjustments, that's for sure.

FHA Home Loans Emerge As A Cheap Alternative For Low Credit Score Homeowners

FHA stands for Federal Housing Administration, a by-product of the National Housing Act of 1934 and now a sub-group within the U.S. Department of Housing and Urban Development (HUD).

The FHA is not a lender nor does it build homes.

The FHA exists to insure lenders against loss in the event that a homeowner defaults on a mortgage.

Mortgages backed by FHA are often called "FHA loans" even though it's somewhat of a misnomer. A more appropriate name would be "FHA-insured" loans because that better describes the FHA's function.

With the FHA's guarantee, mortgage lenders are enticed to make loans on which they would otherwise pass and the explicit backing from the government holds mortgage rates low for borrowers.

FHA loans are often used by borrowers with less-than-20-percent downpayments and, therefore, tend to require mortgage insurance payments.

For FHA loans above 80%, mortgage insurance rates are 0.50% annually (paid monthly) with an up-front payment of 1.5% against the loan size and due at closing.

Homeowners with 15-year fixed FHA loans, however, are exempt from the annual insurance payments.

For all homeowners, though, when the loan balance reaches 78 percent of the home's value, the annual MI is no longer required.

Mortgage rates for FHA loans are typically higher than comparable conforming mortgages but because of new, risk-based pricing from Fannie Mae and Freddie Mac, homeowners with credit scores under 680 are finding FHA a viable alternative.

And often with lower rates.