When you take out an FHA loan, you have to pay upfront MIP or mortgage insurance premium. This money is how the FHA keeps their reserves in order to guarantee the loans that banks offer so that they can pay the banks back when a borrower defaults. Right now this amount is 1.75 percent of the loan amount that you take out. So, for example, on a $200,000 loan, you would have to pay $3,500 at the closing for upfront MIP. The good news is that you get can a portion of this amount refunded in the future if you refinance into an FHA Streamline Refinance.
What is an FHA Streamline Refinance?
The FHA Streamline Refinance is a program that allows you to finance from one FHA loan to another strictly to lower your payment. The streamline portion of the loan means that you do not have to re-verify very many parts of the qualifications for the loan. According to the FHA you do not have to verify the following:
- Appraised value
- Credit score
The values used on your original FHA loan are what can be used for the streamline program. The idea behind the program is that you have a lower payment which makes your loan easier to afford and less likely to be defaulted on.
FHA MIP Costs
Unfortunately, with every new FHA loan, you have to pay upfront MIP again. So the 1.75 percent that you paid originally will have to be paid again and will be based on your new loan amount. You will also have to pay any closing costs the lender changes for the new loan, which are usually equal to the standard closing costs when you closed on your original FHA loan.
FHA Streamline MIP Refund
The good news is that you can get a refund of the original upfront MIP that you paid. The refund is based on the length of time you held the FHA loan. The refund is only good for the first 36 months that you hold the FHA loan, though, so you have to refinance within that time to get the refund. You cannot refinance your FHA loan until you have had it for six months or made 6 payments. Once you make the payments, the refund starts at 70%. This means if you refinanced your FHA loan in the 7th month, you would receive 70% of the amount you paid in upfront MIP back.
The kicker is that you do not receive the money back in cash – you receive it as a credit towards the new upfront MIP that you are required to pay on the new loan. The amount of the new loan will be the same – 1.75% of the new loan amount, minus any refund you are entitled to receive. The refund goes down 2% every month until you hit the 36th month, where the refund is 10%.
The FHA MIP refund is a great enticement to refinance your FHA loan if rates go down enough that it will save you money every month. Because you do not need to re-verify anything on the streamline program, you can be unemployed and/or owe more on your mortgage than your home is worth and still get the loan. Every lender will have different requirements, though, so you may have to shop around to find other lenders that will take your specific scenario. The FHA streamline refinance helps you to save money, refinance out of an adjustable rate loan, or reduce the term of your loan to get your loan paid off faster.