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FHA Streamline - Is this a good deal?

My wife and I are looking to refinance our home to lower our monthly payment.  We want to keep closing costs as minimal as possible.

We purchased our house in October of 2008 for ~$139,000.  We currently owe about $128,000 on the home and the value is hovering right around the purchase price (property taxes are just under the purchase price, but the lender I spoke with mentioned that comparable in our area have sold recently for $140-145, so I believe we're somewhere between the property tax and the comps).

Our current interest rate is 5.875%.

The lender I spoke with was very nice, but I'm not sure the deal they offered was very good and wanted to get some opinions on here -

She recommended the FHA streamline and was able to offer the following:
Rate: 3.750%
Total Closing: 3337.40
Prepaids required: $4877.71
Escrow Advance: $2800 (what we have left in escrow for the year)
Lender Paid Closing: $2500

Unfortunately, this leaves us at just under $3K in out of pocket closing - I'm hoping to be under $1,000 if possible (which I thought would be).

From reading some on here, it seems like $2500 from the lender is pretty low for an interest rate of 3.75, but I could be wrong.

I believe our house would be valued high enough for us to roll in closing costs, but would rather not take the risk of paying for an inspection and still having to bring money to close if I were wrong.

Any thoughts?  Are those numbers good or am I correct in that they're high?

Should I be able to come to closing with an FHA streamlined loan and NOT have to bring more than $1,000 or is that too optimistic given the low amount in my escrow account?

My wife and I have excellent credit.
  • October 10 2012 - US
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Answers (5)

You should close in Dec, that will lower the prepaids to $1241. You also need to get a couple more quotes, you can get a lower rate for the same lender credit.
  • October 10 2012
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Profile picture for jdc417
We are in Texas - zip code is 75132.

Here is a breakdown of the prepaids:

15 days of prepaid interest: $199.08
14 months of Real Estate Taxes: $4464.88
3 months of hazard insurance: $213.75

Taxes are $3637.39, due December 1st.
Insurance is $855 and was just paid and isn't due again until October of next year (2013).

Given the high property taxes we have here, I'm not sure I can drop the pre-paids much if any.  I'm just wondering if it is reasonable to expect the lender to cover more of the closing costs than the $2500 they're currently offering?

Am I correct in assuming they cannot cover pre-paids, meaning the best I could do would be to get them to cover the $3337.40 of closing and pick up the pre-paids minus my escrow advance, which would be a bit over $2,000 still which is almost double what I was hoping to stay under?

If I choose a product other than FHA Streamline, can I still get MIP reduced or is that exclusive to the streamline?
  • October 10 2012
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Get quotes from different lenders. Get both a streamlined and non-streamlined quote. Compare the interest rate and the APR (cost of credit over the life of the loan). The higher the APR (in comparison to the similar programs/ interest rates), the more you are paying in terms of points/fees.

Have your lenders clarify everything, and ask lots of questions!

Hope this helps,
  • October 10 2012
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Exactly what is in the total prepaids figure of $4877? That sounds way out of line for a $140K home, especially since your current escrow balance is $2800. If you are getting a 3.75% rate with a $2500 Lender credit then you need to get a couple more quotes. When are the taxes and insurance paid each year, in which month(s) and how much are the taxes and insurance? What is the zip code of the property?

BTW, do not do an appraisal, that will start the mortgage insurance clock all over again.
  • October 10 2012
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Greetings,

Currently we are doing FHA streamlines with little to no closing costs with rates lower than you have been quoted.

Feel free to reach out to me for assistance and advise what state you are located in.

Thanks,

Paschal
  • October 10 2012
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