Question on New FHA Guidelines

[mar639]

A friend at my local chase bank who tried helping me refinance last year just called me telling me about the new Fha Secure guidelines and that now I will qualify for fha secure loan for a two family. Is the appraised value still an issue with Fha? he also told me I can get a lower rate about 6.5%. I told him I just got modified at a fixed 7%. Do you think I should try for an FHA?

[Moe Bedard]

Tell him to give you a good faith estimate on what it will cost you to do this loan and then compare them side by side. FHA isn't cheap. Especially with a broker involved. You are either going to take it in fees or YSP and a higher rate.

Will that extra .5% be recouped in comparing the fees of the new loan that you will incur. My guess is that it may take you 5-8 years just to make it break even with the new loan as opposed to your 7%.

The guidelines have not changed the lending limits have, that makes the amount of the loans higher than they were before relieving the situation where the loan limits before were unable to assist in certain areas. The guidelines for 3% equity and 0X30 6 months prior to adjustment as well as the DTI and overall credit reputation acceptable to FHA are still in place.

Is your 7% modification fixed for life of the loan, if it is the .50% drop in rate with the addition of MIP costs and closing costs does not make financial sense then.

If it is 7.00% life of loan it is throwing good money to bad to take a refi at 6.50%. If you could get to 6.0% or less, then yes makes sense. That is called Net Tangible Benefit. You would have little or no net tangible benefit at 6.50% as the payment would most likely stay the same or go up....with the 6.0% it will go down and your recapture of the costs of the loan will occur generally in the first 4 to 7 years of the new loan.....ball park...

[mar639]

Thanks.
I figured I stay with my 7%. I dont want to go through the whole refi process just to get probably the same rate or even higher. I believe its not worth it unless I get 6% or lower like you suggested.

Not set in stone, but rule of thumb - drop a point, pay two points in fees and costs, not including prepaids.....

Then you have the net tangible benefit that is worth the expense. The cost recapture is in a 4-7 year time frame.....then it makes sense....otherwise not.

The fact that MIP and monthly MIP are added to the loan and payment with the costs to refi added into the loan amount at that .50% drop do not make a reasonable net tangible benefit in the transaction.

[colahhh08]

I friggin love the knowledge that is available on this site!!

That rule is rate and term refi only....cash out has other rules...like do not do it, causes problems....