Most of you out there have never heard of an “FHA Streamline.” It is like its some dark secret in the industry that no one ever talks about, but this is something that everyone with a FHA or VA loan needs to know about.
What is a FHA Streamline you ask, well let me tell you. Streamlining your loan is the process of refinancing without a required appraisal on your home or credit check. Now don’t be fooled, having good credit is always going to get you the better deal in the end, but it’s not a requirement. Also, there are little to no out of pocket cost and you get to skip one payment. Regular refinancing can cost someone thousands of dollars in origination whereas with a streamline, brokers are not allowed to charge any origination. You may be asking yourself, “How do these brokers get paid?” “What is in it for them?” The answer is simple, yield spread. Brokers usually always make some kind of yield spread. Let me explain, if the current market rate is 4.5% that does not mean you’re going to get that rate. Most likely you’ll be offered a full point to two points higher, and the reason is because of yield spread. If a 5.5% is paying 2 points that means 2% of the loan amount. Loans usually cost around the ballpark of $3,000 so there has to be enough money made in yield spread to pay for it, which means $150,000 loan would need to pay at least 2 points in yield spread to cover all the cost associated with a refinance. Then whatever is left over is what the broker will make. Now some of you might be thinking, “Hey, that’s not fair, I want that low market rate.” Well you can get it, but you’re going to have to pay for it because there will not be enough yield spread to cover the costs. As the consumer you’ll have to decide what’s more important, saving a little money for no out of pocket costs or saving more of money and paying closing costs. I always recommend to all my clients not to pay closing costs. Anybody out there with a high interest rate FHA or VA loan should definitely take advantage of what a Streamline has to offer. Don’t be confused though, there is no such thing as a free lunch, but if you can shave a point or two off you’re interest rate and save yourself a $100-$200 a month you might as well do it.
See more:
Streamline Your FHA Mortgage
New FHA FICO Score Requirements
FHA Streamline Loan Requirements
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