FHA Refinancing – When You Should Really Be Checking the Fine Print

The Obama administration’s new plan to stimulate the refinancing of FHA mortgages is likely to help large numbers of homeowners cut their monthly costs – even those who are deeply underwater. But the programs fine print may end up being quite the disappointment to many borrowers who didn’t read it carefully enough.

So let’s cut through the bureaucratic details and look at the quick overview of the so-called “streamline refi” program and what it will take for you to qualify:

  1.  Your current home loan must be FHA-insured and must be put on the agency’s books by no later than May 31, 2009. This date is crucial and your lender can tell you exactly when the FHA “endorsed” your loan for insurance – this is different from the dates that you applied or closed on your home. So why punish the people who took out loans more recently? Because it's all about the "seasoning" period for mortgages during which the bulk of insurance claims normally occur. Currently FHA has roughly 500,000 active loans in their system, that are automatically eliminated from participation solely on that May deadline. 
  2. You need to have an unblemished record of consistent on-time mortgage payments for the past 12 months. If you were late once in 12 months, you’re out.
  3. And lastly, if your financing does not provide you with a net savings of at least 5% in your monthly principle, interest and mortgage insurance payments, you’re out.

These are the main hurdles you will find if you read the fine print closely and they are substantial enough to exclude hundreds of thousands of current FHA borrowers who might otherwise like to refinance.

Looking at the good side, under The Obama plan, if you qualify on the criteria above, you get to breeze through the paperwork maze and underwrite hassles that come with refinancing.  So, along with the stripped down underwriting, the new program also comes with valuable financial concessions and topping that, the FHA has slashed its regular insurance premium charges for qualified streamline applicants. Overall, if you qualify, you can lower your interest rate to 3.875% and your monthly principal, interest and mortgage insurance $928.92 – an immediate savings of $147.51 a month or $1,770.12 a year – not too bad. 

I haven't heard of anyone actually taking advantage of the program…. have you?  If you have, I'd like to hear about their experience.

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