FHA Streamlines: The Dr. Jekyll and Mr. Hyde of Refinancing

In my two decades of originating loans, the FHA streamline remains the most polarizing product out there. It's the Dr. Jekyll/Mr. Hyde of loans. Here are the pros and cons to help you decide if it's the right move for you.

Pros of FHA Streamline

1. No Appraisal Issues: No appraisal required.
2. No Income Issues: Great for clients with tight DTI, as there are no income restrictions.
3. Streamlined Quick Turnaround: Most can be approved and closed in just two weeks.

Cons of FHA Streamline

1. FHA Upfront MIP: Costs you 1.75% or $1,750 for every $100K financed. For a $400,000 FHA Streamline, that's $7,000! (Note: A refund of previous FHA funding reduces this if the new loan is within 36 months of the previous loan payoff. Check the refund chart for specifics.)
2. Monthly PMI for Life: Most FHA clients pay PMI for the life of the loan unless they originally put down 10%. This effectively adds 0.7% to the rate.
   • Example: $400,000 FHA @ 6% would have P&I payment of $2,398 plus monthly PMI of 55 BPS = $183, total = $2,581. In order to get a $400,000 loan with a P&I payment of $2,581, the actual rate would be 6.7%.
3. Time: Most FHA Streamline clients will reset to a 30-year fixed, which resets the clock, and 95% of FHA consumers will pay the minimum payment.
4. Can't Roll in Costs: Streamlines only allow you to roll in the Upfront MIP. Other closing costs need to be paid out of pocket. This might be an issue if cash flow is tight, especially when taxes and insurance are due.

While the FHA Streamline might be the only deal you qualify for, it might not be the smartest move. It's crucial to know the refund amount of your Upfront MIP when comparing this against a conventional loan. Also, remember the effective rate is 0.7% higher, as PMI will last for most clients for the life of the loan.

Most lenders can offer significant lender credits on FHA streamlines. We usually try to offset the FHA UFMIP with a lender credit so our clients don't lose equity in the process. Always ask your loan officer to compare the FHA Streamline to a traditional conventional refi. Don't be fooled by the lower FHA rate, as most will pay the PMI for life.

Before making a decision, ensure you have all the facts and compare your options carefully. Your financial future might thank you for it.

For a free real-time quote with no credit checks, www.purerate.com/rates, call/text 704.675.7089, or email info@purerate.com

Our guiding principal is radical transparency, we make significantly less on our loans, and pass the savings on to you. In return we need our happy customers to spread the word. This allows Pure Rate to eliminate marketing expenses and deliver industry leading savings.

‍