Couple Saves $604/month by Refinancing Underwater Mortgage with FHA Streamline Refi

May 20, 2012 By Leave a Comment

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Property type: An owner-occupied single-family residence in Benicia
Appraised value: No appraisal required
Borrowing amount: $539,000
Loan type: FHA 30-year fixed
Rate: Fixed 3.75%

Backstory:

Because their home had dropped in value below the amount of their mortgage, these homeowners thought they were stuck with a much higher interest rate and higher payments. However, under the FHA streamline refinance program, an appraisal is often not required and the current value of a home is not important.

These borrowers were able to lower their rate from 5.50% to 3.75%, saving them $604 per month. They were also pleased to learn that, unlike many refinance transactions, the paperwork was easy. There was no need to document income with tax returns and W-2s and pay stubs. With less paperwork and no appraisal required, the whole process was faster too, closing in 34 days from start to finish.

The FHA streamline program can be a great opportunity if it fits. Homeowners must already have an FHA loan. And even though credit standards are more relaxed, the homeowner must be current on their mortgage payments.

Beyond saving money with a lower interest rate, another large incentive is coming. Beginning this June, President Obama has ordered that the upfront insurance premium required on FHA loans will be reduced to mere fraction of what it used to be. This will save the average FHA borrower thousands in closing costs.

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How to Qualify for Jumbo Refinance Using Financial Assets

April 20, 2012 By Leave a Comment

 

Property type:  Owner-occupied single family residence

Location: Menlo Park, CA

Appraised Value: $1.87 million

Borrowed Amount: $1.15 million

Loan Type: 5 year fixed ARM

Rate: 3.00%

Backstory:

This married couple refinanced their home loan to lower the interest rate from 5.50% to 3.00%. This reduced the interest expense on their home loan by 45%. The new loan only replaced their existing home loan balance. They did not take cash out and there was no other loan is second position.

What made this transaction unique is how they qualified.

Before coming to me, this couple had been frustrated to learn that they did not have sufficient income to qualify for a refinance on the traditional basis of calculating their income using  their tax returns alone. A few other lenders had turned them down using this standard approach.

However, in the jumbo loan market, a few key lenders have discretion to qualify a borrower using an expanded approach that looks beyond just the income demonstrated by tax returns. (They have this discretion because jumbo loans today are often made by banks as an investment to keep on their books and not with the intent to sell the loan to a third party. They are not subject to the underwriting standards of what Fannie Mae or Freddie Mac will buy).

The expanded approach requires that the borrower has considerable financial assets (cash, stocks, bonds, or other marketable securities). The lender presumes that the borrower could, if necessary, spend down their financial assets to supplement their income. The basic formula is to divide the borrowers financial assets by 10 and add that figure to the borrower’s annual income.

In this case, the borrowers previously did not qualify because their housing debt ratio was more than 50% of their income. However, using the alternate expanded approach (called “asset depletion” in the trade), these borrowers were able to supplement their income for mortgage underwriting purposes. This brought their housing debt-to-income ratio under 30% and hence they qualified for the new loan.

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Yes You Can. Jumbo Home Loans Available Now in California.

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