FHA Refinance – No Out Of Pocket Closing Costs
There are many FHA refinancing closing costs which need to be paid during an FHA refinancing process. These closing costs may include all the fees and costs summed up in the FHA refinance process. Except from the FHA streamline refinance – ‘no out of pocket closing costs’ which will be explained here, there are other ways the FHA allows borrowers to pay their closing costs.
Closing costs include of all the fees and costs which had to be paid during the approval of the refinanced mortgage. Costs such as appraisal fees, title fees, lenders fees, and government fees connected to the FHA mortgage processing. FHA refinance streamline programs ‘no out of pocket closing costs’ can be very appealing to customers who wish to refinance but can not afford paying the current closing costs.
The closing costs for a FHA streamline refinancing mortgage can be 2% of the mortgage loan. This means for every $100,000 you refinance, the closing costs will be around $2000. When homeowners who refinance do not have enough cash to pay the closing costs and the FHA agrees, the closing costs would be mounted into the new mortgage loan.
‘No Closing Costs’ Does Not Mean It Is Free
It might be tricky to think that the fact that the FHA streamline refinancing has a no closing cost option, it is free of charges. It is certainly not. There are two main ways to complete the transaction without pulling cash out of your pockets.
The first option is when you mount the closing costs into the new mortgage. In this case you will be paying an interest as agreed, on a slightly higher amount of mortgage.
The second option in FHA streamline refinancing is that the lender agrees to pay off all the closing costs (which becomes a ‘no out of pocket closing costs’ for you) in exchange to offering a slightly higher interest rate.
Which Closing Cost Payment Option Is Better
When a echo sound was heard when the mortgage interest rates have hit yet another ‘ever low’ rates (60 years low), requesting the first an option may be a smart move. When interest rates are so low, $4000 additional mortgage will overthrow you off the deck. You should forward this issue to your current mortgage divisor, to calculate the impact it will have over your future mortgage payments.
For a $300,000 mortgage the closing costs may reach $9000. The second option (lender paying in exchange for a higher rate) may not be financial, but may be the only option if the closing costs fees are not affordable. Even though, today when the national interest rates have reached rock bottom adding a small percent may still be acceptable.
Win-Win – No Out Of Pocket Closing Costs
The option not to pay the closing costs is a fine option to the borrower, but it is also a fine option for the lender, as they will be gaining profit twice.
First time would be when the mortgage sum increases, the lender will make more profit as the interest rate will be on a larger sum. The second thing would be that the lender will agree to a no out of pocket closing costs in exchange too slight increase in the rate. They will be making higher profit on the whole sum.
When No Out Of Pocket Is Not Permitted
There are several scenarios in which the FHA streamline refinancing will not approve a no-out-of-pocket closing costs solution. This can be if the FHA streamline refinanced mortgage does not have enough equity (97.75%) according to the FHA appraisal evaluation report. Though appraisal report is not needed for the FHA streamline refinancing, the no-cash-out will be possible for equity over 97.75% or 97.75% of the previous loan amount.
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