HUD’s Qualified Mortgage Rule has changed the face of the mortgage process in the last few years. Lenders are held to stricter rules and are not able to hand out as many mortgages as they once did unless they meet very specific requirements. In regards to the FHA streamline refinance transactions, the QM rules do apply, but there are specific exceptions in regards to the income. The one area that the QM rules apply is the amount of money the lender can charge the borrower in order to obtain the loan.
The Points and Fees
The points and fees charged on an FHA streamline loan are what really matter when it comes to the QM rule. The basic rule is that the points and fees charged cannot exceed 3 percent of the loan amount. The points and fees include discount points and origination fees. A few charges that a lender must charge in order to process the loan might be able to be excluded – following is a list of must be included:
- Prepaid finance charges
- All compensation paid to the lender whether direct or wrapped into the interest rate charged
- Discount points
- All fees paid to third parties, such as the title company if the lender benefits at all
There are fees that can be excluded, which include:
- Per diem interest
- Upfront mortgage insurance
- Third party fees that the lender benefits from
- Escrow accounts
The Income Exception
The one area that FHA streamline refinance transactions do not have to follow the QM rules is the income qualifications. QM rules state that the lender must do its due diligence in determining that a borrower makes enough money to afford the loan now and in the future. Since the whole point of the FHA streamline program is to eliminate the need to verify things like credit and income, there is an exception when it comes to this program. The lender is not required to verify income under QM guidelines as long as the following requirements are met:
- The FHA loan that the borrower holds right now is current
- The principal balance remains the same or lower – it cannot increase
- The fees charged do not exceed 3 percent as stated above
- There is ample reason for the refinance (typically that the interest rate is lower)
The FHA streamline program makes it very easy to refinance your FHA loan in order to save money. Since the premise behind the program is to save you money every month, qualifying under the QM guidelines is not hard for most borrowers. You cannot qualify for the FHA streamline program if you are not saving a significant amount of money every month, so it makes the process easy when it comes to QM guidelines. If the streamline refinance loan does not provide you with a savings, you will not qualify with the FHA anyways. The key is to lower your interest rate enough to make a difference in your monthly savings.
The FHA does not require verification of your income or credit because the streamline refinance is meant to lower your payment. If you can prove that you made your current FHA housing payments on time for the last 12 months, it is the assumption of the FHA that you will continue to make the payments on time when the payments are lower. Of course, certain lenders have their own overlays on the program, in order to minimize the risks they take. If you are using a different lender than the one that wrote your original mortgage, you might have to undergo a little more qualification just to prove your ability to pay the mortgage.
Overall, the process is simple and well worth it if you are able to save money every month. The FHA streamline program has helped millions of FHA loan holders save money every month. Are you next?