Homeowners with mortgages insured by the Federal Housing Administration have the opportunity to obtain an expedited refinance. An FHA streamline refinance involves paying off an existing FHA loan with a new FHA loan with better terms. Designed to lower monthly principal and interest payments, the FHA streamline can be completed with or without an appraisal. Borrowers who order an appraisal can use a new, higher appraised value to increase their loan amount and cover refinance closing costs. To calculate the maximum loan amount on an FHA streamline refinance with appraisal, use the home's newly appraised value.
Obtain an appraisal report from an FHA-approved appraiser. Your lender, which also must have FHA approval, orders the appraisal on your behalf. The appraiser completes an interior and exterior property inspection and compares your home to similar nearby homes that recently sold in order to estimate the value. An FHA appraisal costs the same as or more than standard appraisals, but the appraisal company, property size and property location affect appraisal price. FHA appraisal reports usually cost between $350 and $450.
Determine which maximum loan amount option applies to you. The FHA allows you to borrow up to the lesser of two amounts. One of the amounts to be calculated is a 97.75 percent loan-to-value plus the new Upfront Mortgage Insurance Premium, called UFMIP. The other amount to be calculated is your current FHA loan amount minus any UFMIP refund due to you, plus your closing costs and new UFMIP fee. Your FHA lender tells you which maximum loan amount calculation applies to you.
The FHA charges the UFMIP on all loans, and borrowers usually roll it into the new loan amount. Most FHA loans required a 1.75 percent UFMIP fee as of 2013. Streamline refinances on loans made on or before May 1, 2009 require only a 0.01 percent UFMIP charge. When you refinance, the FHA may refund a portion of the UFMIP you previously paid.
Multiply the home's value as reported on the appraisal by 97.75 percent of the home's value, if that is the maximum loan calculation that applies to you. For example, 97.75 percent of a $200,000 home is $195,500. Add to this loan amount the new UFMIP amount based on a 1.75 percent rate, which is $3,421.25. Your maximum loan amount is $198,921.25.
A streamline refinance with an appraisal is also known as a credit-qualifying streamline refinance because the lender analyzes your credit, debts and income to approve the loan.
Although your income and your home's value may allow you to obtain a higher loan amount, you can only borrow up to the maximum allowable loan limit for the area in which your home is located. Limits vary by median home prices, with limits in high-cost areas of the country -- such as New York City and San Francisco -- exceeding that of most areas.
You may not cash out on your home's equity when using a streamline refinance with an appraisal. The FHA allows you to obtain a maximum of $500 cash back at closing. A refund usually occurs when the estimated closing costs exceed the actual costs.
The FHA lender must determine that you have sufficient income to cover the new housing expense and other recurring monthly debts. If your credit score has fallen since you took out the FHA loan or your other monthly expenses have drastically increased, you may not qualify to borrow the maximum loan amount determined by your calculations.
- Department of Housing and Urban Development: Handbook 4155.1: Chapter 6, Section C: Requirements for Streamline Refinances
- Realtor.com: How Much Does a Mortgage Appraisal Cost?
- FHA.com: FHA Requirements: Mortgage Insurance
- National Mortgage Professional: FHA Update on CLTV Changes and UFMIP Refunds: UFMIP Refunds
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