a complete guide to fha refinance loans

A Complete Guide to FHA Refinance Loan Options

Updated on

January 29th, 2009

Presented By:Broadview Mortgage Corporation

Presenter:

Scott Schang

Contact Information:

Phone: [email protected]


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Presented By:Broadview Mortgage Corporation

Presenter:

Scott Schang




The Purpose and Goals of this Class

• To Educate and Empower Home Owners

• To tell you the things that lenders/brokers don’t usually like you to know about

• Educate you about the FHA refinance options available to you in today’s market

• Empower you with the ability to make educated decisions about your refinance options


Topics We Will Cover In This Class

• Empowering you to make educated decisions about your refinance

• FHA Refinance Options– Rate and Term Refinance– Cash Out Refinance– Streamline Refinance

• “Red Flags” – What to watch out for

• Wrap Up and Take Aways


Ask Questions throughout presentation

– You may type questions in at any time during the presentation – Questions box on your screen

– FHA loan specialists are standing by to answer your questions during the presentation

– This is an interactive learning environment. You will get the most value by having your specific questions answered

– The only dumb question is the one you don’t ask

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Empowering you to make educated decisions about your refinance

• Refinancing your home is a serious financial decision that requires careful consideration

• The information you will receive here today will help you to see through common advertising and marketing tactics and enable you to make sound financial decisions about your family’s greatest investment….Your home.


Establishing your motivation

• 3 motivations for refinancing – Reduce monthly payment - Save money– Reduce term of loan - Pay off earlier– Cash out – Pay off bills / Home Improvement

• Common misperceptions about refinancing– Reducing monthly payments will save you money– You must reduce the term to pay loan off early

• Many lenders may not tell you this part…..


Performing a Cost / Benefit analysis

• Reducing your monthly payment– There is always a cost to refinancing– “Resetting” your term may lower your payments

but cost you thousands

• Cost Benefit Analysis Example– Bought 2 years ago for $200,000– $195,200 Loan Amount currently– 6.25% Interest Rate– $1,231.43 payment – Principle and Interest only



• First, let’s take a look at the “Benefit”– New Interest Rate – 5.25%– New Payment - $1,115.45 – Over $115 a month!– That’s a Savings of over $41,400 over the term of

the loan! (30 year fixed)

– Sounds not too bad right? Maybe, maybe not



• Next, let’s look at the estimated “Cost”– New Loan Amount - $202,000

• Origination/Discount 1% - $2,020• Processing/Underwriting - $795• Lender / Broker fees - $995• Title / Escrow / Notary - $1,100• Interim Interest 15 days - $435• Escrow Account – Depends on time of year

– Taxes – 4 months - $858– Insurance – 2 months - $85

– Actual costs may vary – This is realistic



• And finally, the Analysis– Old Loan amount of $195,200

• $1,231.43 paid for remaining 336 months• Total pay off - $413,760.48

– New Loan amount of $202,000• $1,115.45 paid over 360 months• Total pay off – 401,562.00

– Actual life of loan Savings is $12,198.48• $33.89 actual monthly savings



• Paying off home sooner – Reduce term– There is always a cost to refinancing

• Cost Benefit Analysis Example– Bought 2 years ago for $200,000– Have 30 year fixed now– $195,200 Loan Amount currently– 6.25% Interest Rate– $1,231.43 payment – Principle and Interest only



• First, let’s take a look at the “Benefit”– New Interest Rate – 5.00%– New Payment - $1,597.40

• Only $365.97 increase• Pay off home in half the time!

– Sounds not too bad right? Maybe, maybe not



• Next, let’s look at the estimated “Cost”– New Loan Amount - $202,000

• Origination/Discount 1% - $2,020• Processing/Underwriting - $795• Lender / Broker fees - $995• Title / Escrow / Notary - $1,100• Interim Interest 15 days - $435• Escrow Account – Depends on time of year

– Taxes – 7 months - $1,500– Insurance – 2 months - $85

• Reducing the term does not reduce costs



• And finally, the Analysis– New Loan amount of $202,000

• $1,597.40 paid over 180 months• Total pay off – $287,532

– Old Loan amount of $195,200• Total pay off - $413,760.48• Interest Savings of - $126,228.48!• OR…..Increase payment to $1,597.40• Pay $7,000 cost toward loan - $188,200• Pays off home in 183 months

– Now you can make an educated decision!


Cost / Benefit Wrap Up

• If your broker, lender or loan officer does not bring up the subject of “benefit” – their focus is on themselves

• As long as the decision to refinance is an educated one – There are no bad decisions


What’s New in 2009

• 2009 FHA Loan Limits– Based on MSA – up to $625,500– “FHA Jumbo” is anything above $417,000

• Results in slightly higher interest rates

• Down Payment Requirement - Purchase– Increased from 3% to 3.5%

• Private Mortgage Insurance - PMI– Upfront PMI increased from 1.5% to 1.75%– Monthly PMI increased from .50% to .55% ns

A Complete Guide to FHA Purchase Loan Options

Borrower Eligibility

• Credit Score Requirements– 580 Minimum Credit Score as a guideline– Can go lower on exception basis– 620 Minimum Credit Score – “FHA Jumbo”

• Loan amount over $417,000

• Non traditional credit lines temporarily suspended as of 4th quarter 2008– Lack of credit score or depth of credit

supplemented by alternative sources• Phone bills, utility bills, auto insurance…etc.

• Investors not accepting – Market Conditions



• Employment Requirements– Must have 2 year history of employment

• If in school or military provide transcripts or discharge papers

– Self Employed must have minimum 2 year history• Business license and tax returns

– Gaps in employment must be explained• Must be at new job for at least 6 months



• Income Qualifying Guidelines– TOTAL Scorecard automated approve/eligible

• Debt to income ratios approved

– FHA Manual Underwriting• Much more restrictive debt to income ratios

– Non Occupying Co-Mortgagors • Can use income of Co-Signer to help qualify• Income / Assets added to borrower’s

– All FHA Loans require full income documentation• Tax returns, W2’s, Pay Stubs



• Income Qualifying Guidelines– Converting Existing Homes into Rentals

• Bad Apples - Effective September 19th, 2008• Temporary exclusion of rental income from

vacated property– Must qualify for full PITI payments on both

homes.• Exception – Relocation with new employer or

transferred by the current employer– Must have executed 1 year lease – Copy of deposit check

• 75% Equity – Appraisal or balance vs. price


Mortgage Insurance Premiums

• FHA Loans require 2 types of Mortgage Insurance Premiums - MIP

– Upfront Mortgage Insurance Premium• 1.75% of Loan Amount• Can be financed into loan amount

– Monthly Mortgage Insurance Premium• .55% of Loan Amount• Included in monthly payment• Included on mortgage statement

– MIP required for minimum 5 years• LTV must be 78% or less to remove


Mortgage Insurance Premiums• Base Loan Amount = 96.5% of Purch Price

– $200,000 Purchase Price– - 3.5% Down Payment– $193,000 Base Loan Amount

• Calculating your Up-Front MIP - Example– $193,000 Base Loan Amt. x 1.75% = $3,377.50

Added to Base Loan Amt = $196,377.50 Fin. Amt.

Payments based on this loan amount

• Calculating your MIP Payment - Example– $193,000 Base Loan Amt. x .55% = $1,061.50

Divided by 12 = $88.46 added to payment


Mortgage Payment History

• 30+ day Mortgage lates in the past are ok with compensating factors – High credit scores– Months of reserves– Low debt to income ratio– Detailed letter of explanation

• Must be current for month of refinance


FHA Refinance Loan Programs

• Rate and Term Refinance– Can include closing costs in loan only

• Cash Out Refinance– Can include closing costs and get cash out

• FHA Streamline Refinance – FHA to FHA– *”No fees” included in loan - no appraisal– Fees included in loan - appraisal required


FHA Refinance Loan Options

• Rate and Term Refinance



• Maximum Loan to Value 97% LTV– Before upfront Mortgage Insurance Premium

• FHA to FHA use Streamline Program



• Cash Out Refinance



• Buying down the interest rate– Ability to pay upfront fees to permanently reduce

interest rate– Significant long term savings



• Cash Out Refinance

• Maximum Loan to Value 95%– Up to loan amount of $417,000– Must have owned 12+ months– 1-2 unit properties only– No more than 1 x 30 late in 12 months

• Current now

• Maximum Loan to Value 85%– Loan amount over $417,000– Owned home less than 12 months



• FHA Streamline

• Can only be used for Rate & Term and must benefit the borrower with rate reduction

• Can only be used if existing loan is FHA refinancing into FHA loan

• No income or asset documentation required

• Two Streamline Options Available– No fees included in loan - No appraisal– Fees paid through loan - Appraisal required



• FHA Streamline – Fees not included

– Refinanced loan amount can not exceed current principle balance

– You will bring in money to escrow for impounds and interim interest

• Next month’s payment should cover– Lender can provide “credit” to cover escrow and

title insurance policy– No income or asset documentation required– No appraisal required– No limit on subordinate financing as long as loan

remains in 2nd lien position



• FHA Streamline – Fees Included– Refinanced loan amount can include closing

costs including title, escrow, impounds, interim interest and lender fees

– Lender can provide “credit” to assist with closing costs

– No income or asset documentation required– Appraisal required– No limit on subordinate financing as long as loan

to value does not exceed 97%


“Red Flags” – What to watch out for

• Only use an FHA Approved lender!

• Many illegal “Branch” companies that are not approved to originate FHA loans

• Check official HUD website for approval status of lender - will provide link on site

• “Red Flags” include – a different company name and/or address on page 3 of loan application.


• The Dangers of Shopping for Interest Rate

– Interest rates are determined by the markets on a daily and sometimes hourly basis

– Your interest rate is not guaranteed until locked• Purchase – can not lock until you have a

property address

– There are many factors that go into determining your interest rate

• Credit scores, Loan amount, Loan to value, Loan purpose, condominium, occupancy

• Interest rate is the most abused loss leader in the mortgage industry!


• The Dangers of Shopping for Interest Rate

• The most common “excuse” that brokers, lenders and loan officers have for a change in rate is……………

– “Well, the interest rates change on a daily basis and that was the rate at the time, on that particular day”

• How can you argue with that, right?

You can now!


Wrap up and Take Aways

– We are a direct Lender that specializes in FHA Refinance, Streamline and Purchase loans.

– We are a direct Lender that specializes in CalSTRS, CalPERS, CalHFA, VA, Conventional and Jumbo Loans

– We are more than happy to be your “second opinion” if you are already working with someone

– We are committed to educating and empowering homeowners - Join us for future classes


Wrap up and Take Aways

– You will receive a “Thank you” email with links to the information we’ve talked about here today

• Copy of power point presentation• Link to search HUD approved lenders• Link to search MSA Loan Limits• Dream Home Finder request• Secure on-line FHA loan application

– Cost / Benefit Analysis• Links to tools and resources we talk about in

all of our classes• A schedule of all upcoming classes

Upcoming Home Buyer Classes

• A Complete Guide to Buying Foreclosures and Short Sales

• A Complete Guide to Closing Costs and the Good Faith Estimate

• A Complete Guide to the CalSTRS 80/17 Home Purchase Program

• A First Time Home buyer’s Complete Guide to Credit and Qualifying

• A Complete Guide to the CalPERS Home Loan Program – No down option

• A First Time Home Buyer’s Complete Guide to Hiring a Real Estate Agent and Finding the Best Deals

Check back often for upcoming classes

Thank you for Attending

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Presented By:Broadview Mortgage Corp.

Presenter:

Scott Schang



a complete guide to fha refinance loans

Education

term of loan

complete guide

analysis old loan

estimated cost new loan

screen fha loan specialists

term refinance cash

cost benefit analysis

benefit new