Many people opt for the FHA streamline refinance because there is no credit check, appraisal, or employment verification. Some loans even offer no closing costs, or significantly lower costs than a traditional mortgage.
Are FHA Streamline Refinance Closing Costs Higher or Lower Than Average?
The FHA streamline refinance loan does not eliminate closing costs. Closing costs depend on the size of the loan, the lender and administrative factors. Closing costs for the FHA streamline refinancing loan are generally lower than other types of loans because the loan paperwork is “streamlined”; less paperwork is required, so the lender does not need to charge as much to pay people to review and approve the paperwork. By requiring more costs be paid by the borrower up front like escrow population amount and title search fees, the closing costs are reduced.
When Are the Closing Costs Due?
Closing costs are due up front when you close the FHA streamline refinance loan. Lenders have the option to offer a “no cost” refinance loan to borrowers. However, this results in a higher interest rate, and the no-cost loan option’s higher interest rate could disqualify someone for the refinance, since the FHA limits eligibility for the FHA Streamline Refinance to those who would see at least a 5% reduction in their monthly house payment.
What Affects Closing Costs?
Your closing costs will typically be lower if you bought your home in the past 12 to 24 months. The prior research and analysis done for the prior loan may eliminate the work required for the streamlined refinance loan.
If you have refinanced your loan previously and rolled in a second mortgage or took equity out of the house, closing costs may be higher on the loan refinance as additional loan officers review your case. You may face higher closing costs when you apply for a “zero cost” loan, where the lender can forgive up to $9,000 in escrow fees and loan administration costs. If the zero cost loan is approved, your closing costs may be covered by the $9,000 grant.
The zero cost streamline loan payment is issued as a credit by the loan officer against costs like the closing costs. If the loan closing costs and associated fees like the property tax escrow amount are greater than $9,000, borrowers will owe the remaining amount at closing.
What About the Up-Front Mortgage Insurance?
Borrowers will owe the full up front mortgage insurance premium at closing. Also called the UFMIP, the amount equals 0.01 percent of the new home loan amount. For example, if the home loan is $200,000, you will owe $20 as the up front mortgage insurance premium.
The up front mortgage insurance premium is different than the private mortgage insurance borrowers may owe. Upfront mortgage insurance is a requirement of FHA loans. Those refinancing loans endorsed by the FHA prior to June first, 2009 will pay a lower insurance rate than those refinancing newer loans. If the old FHA loan was issued prior to 6/1/2009, your new loan’s upfront mortgage insurance will be reduced.
If you sell the home within five years of the streamline refinance loan, you can request a refund of the up front mortgage insurance premiums you paid.
While the up front mortgage insurance premium is due by closing, it is a relatively small fee compared to other closing costs. For example, the streamline refinancing loan generates an annual mortgage insurance premium at roughly 55 basis points. This is equal to 0.55%. And if the borrower has a fifteen year fixed rate mortgage with more than 22% equity, there is no mortgage insurance premium.
Stephanie Barney is a mortgage broker specializing in streamline refinancing for both FHA and VA loans. She helps people refinance their homes without credit checks or appraisals and minimal FHA loan requirements.