Dear Mr. Azrael:
I own a townhouse as an investment property with a Federal Housing Administration mortgage at 7.25 percent. The loan-to-value ratio is 60. I have been getting frequent solicitations regarding "streamline financing" to a lower rate.
The loan officer informs me that there are minimal costs involved in this type of refinancing and that the lending company will pay these costs in exchange for the business of reselling the loan on the secondary market.
Could there be hidden fees that I'm not being told about? How would this type of loan affect my principal? Overall, what do you think of this type of refinancing?
Jeff Swett Baltimore
Dear Mr. Swett:
Streamline refinancing for FHA-insured mortgages may offer borrowers an opportunity to reduce their loan interest rate and lower their monthly mortgage payment.
The streamline refinance program is limited to borrowers who have an existing FHA-insured loan, although some conventional lenders offer similar programs. The application and underwriting procedures are simplified.
There are no credit qualifications and no income qualifications. As a result, borrowers don't have to submit pay stubs, tax returns and other information to verify income or assets. The principal requirement is that the borrower have no late mortgage payments for 12 months preceding the refinance. In some cases, one late payment in the past 12 may be permitted.
Lender charges are limited under the FHA streamline program. Processing fees, appraisals, underwriting fees, loan documentation fees and other "add-on" type charges by lenders are prohibited. Lenders are permitted to charge a loan origination fee and a loan commitment fee. A loan "discount" fee also is permitted, but only if it reflects the actual cost of obtaining a below-market interest rate.
Under the FHA streamline program, the new loan amount cannot exceed the principal balance of the existing loan plus permitted lender charges and closing costs for title fees, interim interest, tax and insurance escrows and government recording fees.
In shopping for an FHA streamline loan, here are some tips from Kevin Kesecker, an officer of Atlantic Financial Inc., a mortgage lender based in College Park:
