Okay, admittedly, government programs to help homeowners have not been all they were cracked up to be.
HUD had increased the cost of mortgage insurance (MI) on new FHA loans so much that it just did not make sense to refinance. The MI cost so offset the lower rate that for many FHA homeowners any savings was ate up by the increased MI costs.
Good news! Now for homeowners with existing FHA loans on their home, the MI that had gone up to 1.25% of the loan amount per year has now been cut way back to what it cost several years ago, to just 0.55% of the loan amount.
Put in dollar terms, let's assume an FHA loan amount on your home of, say, $ 200,000. That would cost $ 2500 per year just in MI fees. You pay those monthly, so that is $ 208.33 per month added to the mortgage cost.
Now, that has declined to just $ 1,100 per year, or $ 91.67 per month.
That's a $ 1400 a year savings. Big numbers.
So, if you took out an FHA mortgage a few years back at 6.5%, and can refinance to a new Streamline FHA mortgage at 3.75%, that is a savings of $ 338 per month, since your MI will remain what it was back then. That is worth doing.
Caveats to the New Program
There are just three things to keep in mind to make sure that you qualify for the new FHA streamline refinance program with the lower MI.
- You must have an existing FHA mortgage loan on your home right now.
- You must have taken that FHA loan out prior to June 1, 2009
- You must be current with your mortgage payments for the past 12 months
Oh, and just like any FHA loan, you need to be employed and have at least a 620 credit score, of course.
If you meet all of those requirements, then you're in. Why not spend 30 minutes completing loan application and gathering a few documents? If that 30 minutes of initial work saves you some $ 4k per year, that's a pretty good return on your time invested.
Okay, it does get a little better yet. You see FHA loans have the annual mortgage insurance that we spoke of earlier. But they also have part of the MI that is added to your loan amount, called the 'Up Front Mortgage Insurance Premium'.
That amount is 1% of the loan amount for current new FHA loans. But not for Streamline FHA loans that fit the criteria above. Nope. Waaaay too much money.
Now it is just.01% of the loan amount. Right. Almost nothing.
So take advantage of the new, low cost FHA streamline refinance , and save.
Still wondering? Okay, you will not need an appraisal , either. There, that should do it.