Title, Inc., Title Companies & Agents, Hunt Valley, MD

Monday, September 25, 2023

FHA & FHA Streamline

An FHA insured loan is a Federal Housing Administration mortgage insurance backed mortgage loan which is provided by a FHA-approved lender. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. To obtain mortgage insurance from the Federal Housing Administration, a mortgage insurance premium (MIP) equal to 1 percent of the loan amount at closing is required, and is normally financed by the lender and paid to FHA on the borrower's behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well.

The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by the government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers. Over time, private mortgage insurance (PMI) companies came into play, and now FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI. The program has since this time been modified to accommodate the heightened recession.

FHA Streamline

An FHA streamlined mortgage is the name given to an FHA refinance mortgage where the goal of the refinance is to simply lower the rate and the payment on an ‘existing’ FHA loan. The reason the loan is streamlined is due to several characteristics of the loan.

First, it is for existing FHA loans only. The borrower must have been in the current FHA loan for at least 12 months. Additionally, the last twelve months must have been paid on time. This is checked with a verification of mortgage history which coincides with the next point.

The second characteristic of an FHA streamline loan is there is no credit report needed. Therefore, it doesn’t matter what your credit score is, if you’ve had late payments on other accounts or if you have other derogatory marks on your credit report. Third, there is no appraisal necessary on an FHA Streamline Refinance. This is huge especially in areas of declining home prices because you won’t be restricted liked you could be with a normal FHA loan because the value is simply reasonably stated. Fourth, there is no income and employment information needed. Even someone who recently lost their job and wants to take advantage of lower FHA rates can do so.

Your new Streamlined FHA mortgage will include the sum of the existing FHA insured first lien, closing costs, reasonable discount points if applicable, the prepaids necessary to establish your escrow account and any applicable refund of up-front mortgage insurance premiums.

In most cases 99.9% of FHA Streamlined loans will only apply to primary residences. There are however situations where this does not apply. The most typical scenario is when someone buys a primary residence using an FHA loan and then turns the property into a rental property when they buy another primary home. If a person has a non owner occupied property with an FHA loan currently on it, they will not be withheld from taking advantage of an FHA streamlined refinance.

Given the implied future benefits with FHA Streamlined loans, anyone considering purchasing a home or refinancing a home should strongly consider FHA.

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