FHA Streamline Refinance Closing Costs

My question is concerning closing costs in a fha streamline refi. What is the loan origination fee, administrative fee , and yieild spread differential? What is an average amount for closing costs?

You should know there is a huge difference in costs from lender to lender. I typically do my streamlines with the lender paying all costs, other than the upfront MIP. The total costs in Missouri and Illinois (where I write the majority of my business) run about $1200, but in most cases it's just a better deal for my clients if they pay 1/8th or so more on the rate, and keep their money in their pockets. When costs could be rolled into FHA streamlines it was much easier to have the option to charge the borrower, but now that any costs borrower is paying must be paid at closing (and funds sourced with bank statements), it's just 10X easier for me to pay the cost. As far as someone charging origination on a loan they're making 4% ysd.......well, let's just say that's not the best deal I have ever seen.....

- Ted R. - Dec 12, 2011 at 11:42PM
3 Answers

On a streamline FHA the costs are averaged here. Originaion= 0 to 1 Percent, Admin= 0 to $495 Yield spread= 0 to 4%, average cost are 3-5% of loan amount. Most of the time you will receive the best rates and terms if you go thru your current lender.

For a faster closing and smoother transition you may use a broker. On the loans that I close I will make 2% of the loan amount. We can achieve this 2 percent by either increasing the fees upfront or by increasing the rate on the back or even by splitting the fee upfron with the rate on the back. In any case make sure that whomever you use is fluent and well knowledged in FHA guidelines as well as principals.

Closing costs for an FHA streamline refinance can vary from lender to lender, & may be different for loans of different sizes.  Just like any new first mortgage obtained, there are certain fees that must be paid.  Here is a listing of the more common items you should expect to see:

Title Insurance.  There will be a need for a new title policy to be issued, because you'd be getting a new loan, & title must be proven to be clear of liens & judgments.  Title insurance is usually based on a percentage of the loan amount, plus service fees for administrative items in association with providing the coverage.

Recording fee. The new loan/mortgage must be recorded, & the old loan/mortgage extinguished.  This cost will vary according to local policies in your area.

Escrows/Reserves.  A new escrow account for paying taxes & homeowners insurance will need to be established.  Often the cost of this may be offset in part or entirely by applying the balance of the current escrow account.

Taxes/Insurance.  Any impending insurance renewal or property taxes due may be required to be paid.

Up front Mortgage Insurance, (UFMIP) FHA loans have a mortgage insurance premium that is typically financed into the loan, & there is a pro-rated refund of any existing unearned UFMIP that can be applied to the closing costs. This is typically 1.5 - 1.75% of the new loan amount.

Lender fees:  These may vary depending on how your originator is setting up your loan.  Application fees, commitment fees, & other small pass through fees may be charged.

Discount points.  Discount points can be charged to further reduce the interest rate below the current market rate. 

**YIELD SPREAD PREMIUM:  YSP is a tool that can be used to reduce a borrowers cost of obtaining a loan.  In exchange for a borrower accepting a slightly higher interest rate, YSP may be available to be used to offset a borrowers closing costs, & is typically seen as a "lender credit".

A typical Streamline refinance transaction results in a borrower bringing anywhere from zero $$$ to about one monthly payment to closing.  Normally there is no payment due right away, so bringing this payment to closing is essentially the same as paying your normal monthly payment.  There is no limit to the amount of times a borrower can utilize the streamline refi feature of FHA financing.  There is often no credit qualifying, no appraisal, & no debt ratios calculated.  You must be current on the existing FHA loan. Streamline refinances are relatively inexpensive, & easy to get through the process.

Closing costs and rates will vary amongst lenders.  This is why most borrowers are smart to check with a couple reputable lenders for upfront quotes.  I recommend that you talk to at least one loan officer from the directory in your area.  I never recommend that you talk to more than two or three lenders since your chances of confusion and running into potential "bad apples" could increase.

To answer your question, specifically:  A loan origination fee is often a standard fee that a lender will charge to originate your loan, quite commonly, you will see a 1% loan origination fee.  Anything more, may start to become excessive unless you are asking for a lower rate.  The administrative fee is a very common fee that lenders/brokers charge to process your fee to cover overhead and the actual processing of your loan.  Often times anywhere from $300-$700.  The yield spread differential is what the lender will pay the broker for that the loan at a specific rate.  The higher the rate, the more YSP that is given to the broker and vice versa.  If you choose a very low rate, the YSP will convert to discount points paid on your behalf to the lender for the discounted rate.

It is very difficult to distinguish an average amount for closing costs for they will vary from one broker to the next.  Now when it comes to streamline refinances, often times, closing costs must be kept to a minimum if you recently refinanced or bought your home.  A streamline will max out your new loan amount not to exceed, the original loan amount plus your new MIPFF - 1.75% of he loan amount.  If there is a significant difference ($5-8,000) difference between your original loan amount and your current balance, then there is more room for closing costs.

As a professional in this business, the closest I can get to average or "fair" deal is that the lender or broker is being compensated 1-2% of you loan amount through YSP and origination fee.  Compare a couple quotes and see which one ultimately works best for you and is most cost efficient, however remember, what seems to ggod to be true, often is.