Commonly Used Indexes for ARMs This article includes a list of the most commonly used indexes by ARM lenders that affect ARM mortgage rates.
6-Month CD Rate
This index is the weekly average of secondary market interest rates on 6-month negotiable Certificates of Deposit. The interest rate on 6 month CD indexed ARM loans is usually adjusted every 6 months. Index changes on a weekly basis and can be volatile.
This index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of 1 year. This index is used on the majority of ARM loans. With the traditional one year adjustable rate mortgage loan, the interest rate is subject to change once each year. There are additional ARM loan programs available (Hybrid ARMs) for those that would like to take advantage of a low interest rate but would like a longer introductory period. The 3/1, 5/1, 7/1 and 10/1 ARM loans offer a fixed interest rate for a specified time (3,5,7,10 years) before they begin yearly adjustments. These programs will typically not have introductory rates as low as the one year ARM loan, however their rates are lower than the 30-year fixed mortgage. This index changes on a weekly basis and can be volatile.
This index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of 3 years. This index is used on 3/3 ARM loans. The interest rate is adjusted every 3 years on such loans. This type of loan program is good for those who like fewer interest rate adjustments. The index changes on a weekly basis and can be volatile.
This index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of 5 years. This index is used on 5/5 ARM loans. The interest rate is adjusted every 5 years on such loans. This type of loan program is good for those who like fewer interest rate adjustments. This index changes on a weekly basis and can be volatile.
The prime rate is the rate that banks charge their most credit-worthy customers for loans. The Prime Rate, as reported by the Federal Reserve, is the prime rate charged by the majority of large banks. When applying for a home equity loan, be sure to ask if the lender will be using its own prime rate, or the prime rate published by the Federal Reserve or the Wall Street Journal. This index usually changes in response to changes that the Federal Reserve makes to the Federal Funds and Discount Rates. Depending on economic conditions, this index can be volatile or not move for months at a time.
12 Moving Average of 1-year T-Bill
Twelve month moving average of the average monthly yield on U.S. Treasury securities (adjusted to a constant maturity of one year.). This index is sometimes used for ARM loans in lieu of the 1 year Treasury Constant Maturity (TCM) rate. Since this index is a 12 month moving average, it is less volatile than the 1 year TCM rate. This index changes on a monthly basis and is not very volatile.
Cost of Funds Index (COFI) - National
This Index is the monthly median cost of funds: interest (dividends) paid or accrued on deposits, FHLB (Federal Home Loan Bank) advances and on other borrowed money during a month as a percent of balances of deposits and borrowings at month end. The interest rate on Cost of Funds (COFI) indexed ARM loans is usually adjusted every 6 months. Index changes on a monthly basis and it not very volatile.
Cost of Funds Index (COFI) - 11th District
This index is the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts, advances from the FHLB, and other sources of funds. The 11th District represents the savings institutions (savings & loan associations and savings banks) headquartered in Arizona, California and Nevada. Since the largest part of the Cost Of Funds index is interest paid on savings accounts, this index lags market interest rates in both uptrend and downtrend movements. As a result, ARMs tied to this index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good if rates are falling.
L.I.B.O.R stands for the London Interbank Offered Rate, the interest rates that banks charge each other for overseas deposits of U.S. dollars. These rates are available in 1,3,6 and 12 month terms. The index used and the source of the index will vary by lender. Common sources used are the Wall Street Journal and FannieMae. The interest rate on many LIBOR indexed ARM loans is adjusted every 6 months. This index changes on a daily/weekly basis and can be extremely volatile.
National Average Contract Mortgage Rate (NACR)
This index is the national average contract mortgage rate for the purchase of previously occupied homes by combined lenders. This index changes on a monthly basis and it not very volatile.
FHA Streamline Loans The FHA streamline refinance program helps current FHA homeowners lower their interest rate and monthly payment — it’s a fast and cost-effective way to refinance with lenient documentation requirements and credit standards.
The FHA streamline refinance program helps current FHA homeowners lower their interest rate and monthly payment — it’s a fast and cost-effective way to refinance with lenient documentation requirements and credit standards.
To further entice FHA mortgage holders, the FHA also offers upfront mortgage insurance premium (upfront MIP) refunds. This refund allows a portion of the premium paid when the original FHA loan closed to be applied to the upfront MIP of the new FHA streamline refinance loan.
Here are a few of the biggest benefits to the FHA streamline program:
No appraisal is required
Underwater homes are eligible
Very low rates
No income documentation is required (paystubs, W2s, etc.)
You may be entitled to a refund of part of your original upfront mortgage insurance
FHA loans closed before May 31, 2009 may qualify for reduced mortgage insurance premiums of 0.01% upfront and 0.55% monthly
Faster closing times than traditional refinances
Who qualifies for an FHA streamline refinance?
The FHA streamline is available to homeowners who currently have an FHA loan with a good payment history. Homes that have lost value and are now underwater are eligible too.
The most important qualification though, is that borrowers must receive a benefit from refinancing. Lenders can approve an FHA loan when the payment will drop by at least 5 percent. This is a built-in protection for refinance applicants. See the Net Tangible Benefit section below.
FHA refinance rates
Current FHA rates are some of the lowest in history. According to Ellie Mae’s January 2019 Origination Report, the average 30-year rate on FHA loans decreased to 5.05 percent. This keeps FHA rates on par with conventional loan rates at 5.04 percent.
The refinance interest rate you’ll qualify for will depend on factors like your credit score, interest rate type, and loan type. You’ll have to speak with lender to determine the specific FHA refinance rate you’re eligible for.
FHA loan payment history requirements
To qualify for an FHA streamline refinance loan, you must show a history of on-time mortgage payments. If you have had some late payments, you are not automatically disqualified. You can rebuild your history going forward and qualify 12 months after your second most recent late payment.
FHA loan payment requirements:
If you mortgage is less than 12 months old, then you must have made all mortgage payments on time.
If your mortgage is 12 or more months old, then you are permitted no more than one payment that was 30+ days late. The three months’ payments prior to the loan application must have been made on time.
FHA streamline waiting periods
If you’ve just closed on a loan, then you are not be eligible for an FHA streamline refinance — there is a waiting period between when you first closed and when you can refinance.
FHA streamline refinance waiting period requirements:
You have made at least six on-time payments on your current FHA mortgage
It’s been at least six months since your first payment due date
210 days have passed since the day your current mortgage closed in escrow
For example: If your current FHA loan closed on November 28, 2018, then your first mortgage payment was due on January 1, 2019. You can refinance as soon as July 1, 2019 — 210+ days after closing and six months after your first payment.
Closing costs for FHA streamline
Closing costs on an FHA streamline are generally the same as with other mortgages, except that there is no appraisal fee (if you opt not to get an appraisal).
Generally, you can expect to pay between $1,000 and $5,000 in FHA streamline closing costs, but this amount could be higher or lower depending on your loan amount and other factors. If you have equity in your home, then with an appraisal you may be able to wrap closing costs into the new loan amount.
There are essentially two types of streamline refinances — those with an appraisal and those without. The vast majority of people will opt for the no-appraisal option, simply because the process is quicker, cheaper, and no equity is required.
Why would someone get an appraisal on an FHA streamline? Because only streamlines with appraisals can include closing costs in the new loan amount. Otherwise, closing costs have to be paid out of pocket.
If you order an appraisal, make sure you have enough equity in the home to cover the existing balance of the loan, closing costs, and any interest due.
Maximum FHA streamline refinance loan amount
If you opt for a no-appraisal FHA streamline, the loan amount may include:
The current principal balance
Up to one month’s worth of interest due
The new upfront mortgage insurance fee
Subtract out the upfront mortgage insurance refund, if applicable (usually applies only if the FHA loan was originated less than 3 years ago)
If you don’t you have equity in your property, it’s best not to obtain an appraisal.
FHA streamline document checklist
Here is a list of documents your lender may need to process your FHA streamline:
Mortgage note from your current FHA loan, which shows your current interest rate and loan type
Current mortgage statement
Final settlement statement (final HUD-1) or Deed of Trust with the FHA case number of your current loan
Contact information for your employer’s HR department — lenders need to verify your employment not your actual income
Two months of bank statements including all pages (even blank pages) that show you have enough funds to pay for any out-of-pocket costs associated with the loan
Contact information for your homeowner’s insurance agent to obtain current proof of insurance
Also, make your next month’s mortgage payment as soon as possible. This allows your lender to obtain proof that your FHA mortgage is current. We may require more or less than the items listed above depending on specific conditions.
Mortgage insurance premiums
FHA reduced its upfront and monthly mortgage insurance (MI) premiums for some borrowers if your loan was endorsed by FHA on or before May 31, 2009 — a reduction of 0.01% upfront MI and 0.55% monthly MI. (Endorsed means that your loan was closed and that the FHA insured your loan.) In most cases, FHA loans need to be closed before this date to be endorsed by FHA in time. If you closed your loan in May 2009, your lender can pull a “case query” with the FHA to verify endorsement.
If your loan was not endorsed after May 31, 2009, then mortgage insurance premiums are 1.75% upfront and usually 0.85% of the loan amount per year, paid each month in 12 equal installments.
Mortgage insurance refunds
You may be entitled to a refund of the upfront mortgage insurance you paid when you opened your existing FHA mortgage. The refund amount is determined by how long ago you opened your mortgage, and when the new FHA streamline closes. Usually, refunds are only available if the FHA loan is refinanced with another FHA loan within the first 3 years.
Each month, the refund amount decreases. So if you refinance within 12 months, you may be refunded as much as 60% of your original upfront mortgage insurance. But if you refinance after 30 months, you will only receive about 20%.
Net Tangible Benefit
A FHA streamline must result in a Net Tangible Benefit (NTB) for the borrower — the refinance must improve the borrower’s financial position as defined by the FHA. Generally, NTB is defined as reducing the borrower’s “combined rate” by at least 0.5%.
For example, a homeowner has a current interest rate of 4.5% and an insurance premium of 1.35% for a combined rate of 5.85%. If the homeowner refinances into a new 4% FHA loan with an insurance premium of 0.85%, then the new combined rate of 4.85% is 0.5% reduction making the refinance eligible.
The 0.5% “combine rate” reduction rule applies if you’re refinancing a fixed rate mortgage into another fixed. If you’re refinancing into (or, out of) a one-year ARM or Hybrid ARM (3-, 5-, 7-, or 10-year ARM), then there are different NTB requirements.
Net Tangible Benefit Combined Rate Requirements
Current Loan TypeRefinance Loan TypeNet Tangible Benefit Requirements
Fixed rateFixed rateDecrease at least 0.5%
Fixed rateOne-year ARMDecrease at least 2%
Fixed rateHybrid ARMDecrease at least 2%
Any ARM w/ less than 15 months in fixed periodFixed rateIncrease no more than 2%
Any ARM w/ less than 15 months in fixed periodOne-year ARMDecrease at least 1%
Any ARM w/ less than 15 months in fixed periodHybrid ARMDecrease at least 1%
Any ARM w/ greater than 15 months in fixed periodFixed rateIncrease no more than 2%
Any ARM w/ greater than 15 months in fixed periodOne-year ARMDecrease at least 2%
Any ARM w/ greater than 15 months in fixed periodHybrid ARMDecrease at least 1%
Is cash back allowed on an FHA streamline?
No cash back to the borrower is permitted to be intentionally built into the FHA streamline transaction. FHA does permit a small amount of cash, usually less than $500, to go back to the borrower. Cash back can only be as a result of incidental changes in closing costs calculations, which happens often with all mortgages. Some lenders limit the amount to $250 or less.
Minimum credit score for FHA streamline refinance
FHA does not require a credit report to be pulled. However, most, if not all lenders will require a credit report.
A standard “benchmark” minimum credit score for the FHA streamline program is 640. However, some lenders will allow a score of 620 or even 600. If you are denied, shop around. You might find a lender who approves your application.
Amount of money needed to qualify for FHA streamline refinance
You will need to provide 60 days of bank statements showing enough money to cover any out-of-pocket closing costs. Your loan officer will work up an estimate of total funds due, which should give you a general idea about how much money you need in your accounts.
This estimated out-of-pocket amount might increase through the course of the loan. Be prepared to provide updated statements or additional statements to prove you have the increased amount.
An additional note about bank statements: provide all pages, even blank ones, to your lender. Make sure your name, address, and account number appear on your statement too. Online bank printouts often don’t include your personal information, so you’ll need the mailed version or the PDF version of your full statement.
FHA streamline loans and condominiums
Many condominiums have lost their FHA eligibility over the past few years. However, FHA streamlines are available on condo complexes that were approved at the initial opening of the loan, but have since lost their approval.
The exception is when an appraisal is needed for the FHA streamline. In this case, the condo would need to be FHA approved currently. For more information about FHA and condos, see our blog post about this subject.
Can I refinance my second home or investment property with FHA streamline?
In most cases, FHA allows second homes and investment properties to be refinanced with a streamline. As with all streamline refinances, the property has to have an FHA loan on it currently.
If the payment is increasing or the new loan will be an ARM, the streamline will not be permitted on second homes or investment properties.
Can I add or remove borrowers with an FHA streamline?
Borrowers can generally be added to the title without income and asset review. FHA permits a person to be removed from the loan, as long as one of the original borrowers remains on the loan. Attempting to “assign” the loan to someone else entirely using an FHA streamline is not permitted.
Can I refinance my 30-year loan to a 15 year using an FHA streamline?
No. Reducing your loan term is not permitted with FHA streamlines. You must use a regular FHA refinance. An appraisal, as well as full income, asset, and credit documents will be needed.
Can I refinance my 15-year loan to a 30 year using an FHA streamline?
Yes. Your combined rate must decrease by 0.50%. See the Net Tangible Benefit section.
Can I refinance my FHA ARM to another FHA ARM?
You may use an FHA streamline to refinance an adjustable rate mortgage (ARM) to another ARM. This can only be done on a primary residence. No second homes or investment properties will be permitted for ARM-to-ARM refinancing.
Can I refinance my ARM to a fixed rate?
Yes. However, there are additional requirements when refinancing into and out of a one-year ARM. See the Net Tangible Benefit section.
Can I refinance my fixed rate to an ARM?
Yes. See the Net Tangible Benefit section.
Can I refinance my completed 203k rehab loan with an FHA streamline?
Yes. If all the work is complete as evidenced by:
A certificate of completion
A final release of the rehabilitation escrow account
The previous lender’s completion of the 203k closeout process in FHA’s website (called FHA connection)
FHA permits this type of refinance to be completed without an appraisal. However, your lender may require one. Speak to one of our professionals to find out what will be required in your situation.
Can I use an FHA streamline if my home is in bad shape?
The FHA does not require repairs on a home that is in sub-par condition as long as there is no appraisal required for the transaction. If you opt for an appraisal (or, your lender requires one), then you will be responsible for completing those repairs before before approval.
The FHA streamline refinance is a great way for current FHA homeowners to lower their interest rate and monthly payment. And, with lenient credit standards and documentation requirements it can be the fastest and most cost effective options to refinance an FHA loan.
FHA Manufactured Home Loans Mobile homes, also known as manufactured homes, represent more than one out of ten new homes built and provide an affordable alternative for home ownership. Less expensive than both new and existing single family homes, manufactured housing has been an alternative to more expensive “stick-built” housing for decades. Perhaps the most widely-available form of financing for mobile homes is offered through the Federal Housing
FHA loans for mobile homes offer the same benefits as for existing homes or newly constructed ones. That means a down payment as low as 3.5 percent of the sales price along with competitive interest rates.
FHA loan approval guidelines for manufactured housing usually require a minimum credit score of 640 in most cases, acceptable debt-to-income ratios and other typical FHA requirements. As with any loan program, certain lenders may have more rigid requirements, especially when it comes to manufactured home financing.
The first thing about the manufactured home you should check before making an offer is whether it was built on or after June 15, 1976. This is an absolute hard-and-fast date with no exceptions if you need FHA financing. This is because homes built on or before June 14, 1976 may not conform to the Manufactured Home Construction and Safety Standards, a set of standards that HUD requires.
Most manufactured homes will require a foundation inspection by a certified engineer before they are eligible for FHA financing. The lender will usually find a qualified engineer. Keep in mind that these inspections can run upwards of $650, so be prepared for that extra cost if looking to finance a manufactured home with an FHA loan.
HUD Tag and Data Plate
The HUD tag, also known as a Certification Label or HUD label, looks like a small license plate and is located on the outside of the manufactured home. There may be multiple HUD tags – one for each unit of the home. For instance, a double-wide will have two HUD tags.
It’s important that these tags are on the home and still visible, even if painted over. They can be hard to find on older manufactured homes, but are essential for FHA financing.
Also make sure the Data Plate is in the home prior to making an offer to buy. This is actually not a plate but a piece of paper that is located in the kitchen cabinet, electrical panel, or bedroom closet. This paper gives information regarding the geographic location in the United States for which the home was designed. For instance, a home designed for Phoenix, Arizona will be built to withstand heat, but not to handle heavy snow loads. The Data Plate ensures the home is in the right geographic location.
If there is no Data Plate or HUD tags on the home, the current owner will have to research the history of the home and provide the serial number or numbers from the HUD tags. HUD has contracted with IBTS which can research and certify HUD labels.
An IBTS certification may also be required if the FHA underwriter can’t adequately see the HUD label in the appraisal photographs due to paint or other obstructions.
Pros of Buying a Mobile Home
Affordability. The primary advantage for manufactured housing is its price. Today, construction costs are up to 20 percent less to complete compared to a site-built home.
Predictability. Manufactured homes are built brand new with the cost to the consumer established prior to the home being built. Cost overruns and “change orders” common with newly constructed site-built properties are avoided.
Environmentally Friendly. New manufactured homes are built using today’s latest environmentally friendly technologies and materials to lower the impact on the environment as well as energy-efficient savings.
Cons of Manufactured Housing
Depreciation. The biggest drawback to manufactured housing is that the structure depreciates, instead of appreciating like a stick-built home does. Often, the land value will increase, making the overall value stay the same or even increase somewhat. But total appreciation will not be as dramatic as it would be with a stick-built home, since the depreciating structure drags down the value.
Design. Unlike new construction for site-built homes, manufactured housing is built to predetermined design components. While certain amenities such as flooring or other options can be selected, you’re limited to the floor plans offered by the manufactured housing dealer.
Location. If you own your own lot and want to place a manufactured home there, you may be limited by local zoning ordinances prohibiting the placement of manufactured homes.
Financing. Financing for manufactured housing can be more difficult to find compared to other loan types and even FHA-approved lenders may choose not to finance manufactured housing, regardless if the home meets FHA manufactured housing standards.
Question and Answers about Manufactured Housing and FHA Loans
Can I buy a home and rent it out? As with other FHA loans, lending guidelines require you to occupy and finance the manufactured home as your primary residence.
Can I get a gift to help with my down payment and closing costs? Yes, FHA loans allow gifts from qualified donors such as family members, government agencies and non-profit institutions.
What special considerations are there for FHA manufactured housing loans? Other than meeting the maximum loan limits and construction considerations, qualifying for an FHA manufactured housing loan is similar to any other FHA mortgage. You’ll need to have qualifying credit, be able to make the monthly payments and have enough money for a downpayment and closing costs available.
My bank said my credit score of 630 was too low, what is the FHA minimum? While the FHA doesn’t establish minimum credit scores, most FHA lenders do set their own. The minimum most lenders require is 640 but a few FHA lenders allow a lower score.
What is considered a Mobile Home or Manufactured Home?
Is there a difference? Mobile homes and manufactured homes are one in the same. So there’s no difference between FHA mobile home financing and FHA manufactured home financing.
A mobile home is built at a manufacturing plant instead of “on site” as other homes are built. That’s why the industry typically refers to them as manufactured homes.
Manufactured housing is not to be confused with modular homes. Modular homes are also built at a plant but in different components, or “modules” that are shipped to the construction site where the home is then assembled.
VA Loans VA loans are mortgages guaranteed by the Department of Veteran Affairs. These loans offer military veterans exceptional benefits, low interest rates and no down payment requirement. This program was designed to help military veterans realize the American dream of home ownership.
The VA Loan provides veterans with a federally guaranteed home loan which requires no down payment. This program was designed to provide housing and assistance for veterans and their families.
The Veterans Administration provides insurance to lenders in the case that you default on a loan. Because the mortgage is guaranteed, lenders will offer a lower interest rate and terms than a conventional home loan. VA home loans are available in all 50 states. A VA loan may also have reduced closing costs and no prepayment penalties.
Additionally there are services that may be offered to veterans in danger of defaulting on their loans. VA home loans are available to military personal that have either served 181 days during peacetime, 90 days during war, or a spouse of serviceman either killed or missing in action.
Non-Qualified Mortgage (non-qm) Qualified mortgages are a new mortgage classification. Starting in 2014, they were created to make it more likely that a borrower would be able to pay back the loan. Lenders need to assess the borrower’s ability to repay and borrowers need to meet a strict set of criteria.
What is a Qualified Mortgage?
In order to better understand a Non-QM, it is helpful to be familiar with the criteria of a qualified mortgage. A qualified mortgage (QM-loan) is a home loan that meets certain standards set forth by the Consumer Protection Act and the Dodd-Frank Wall Street Reform Act, signed by President Obama following the 2008 housing crisis.
The requirements for a qualified mortgage include: Verification of income is required, otherwise known as the “ability-to-repay” rule
Debt ratio cannot exceed 43%
Points and fees should not exceed 3% of the loan amount
The loan cannot have risky features such as negative amortization or interest-only
The loan term cannot exceed 30 years
These guidelines were adopted by the Consumer Financial Protection Bureau (CFPB)
to help prevent poor lending practices that sparked the previous financial crisis.
What is a Non-Qualified Mortgage?
A Non-Qualified Mortgage (Non-QM) is a loan that doesn’t meet the standards of a qualified mortgage and uses non-traditional methods of income verification to help a borrower get approved for a home loan. These types of loans are for borrowers with unique income qualifying circumstances.
Who Can Benefit from a Non-QM Loan?
Non-QM loans fill the gap for borrowers who may be self-employed, have non-traditional income, or have had difficulty qualifying for a QM-loan due to credit issues in the past. Non-QM loans have underwriting guidelines that allow the lender to view the “bigger picture” of your financial history thus determining a borrower’s ability-to-repay in a slightly different lens than usual.
You may find a Non-QM loan beneficial if you are any of the below:
Real estate investor
Prime or non-prime borrower
Borrowers with significant assets
A non-QM loan may be used for new home purchases, refinances, investment homes, or second homes.
Are Non-QM Loans a Safe Option?
A common misconception is that non-QM loans are “bad loans” in disguise. Similar to QM-loans, these types of loans have their own set of guidelines to ensure that the borrower and lender are protected from a high-risk loan. The lending process is quite similar, just with a different set of documents during the application process.
Balloon Mortgages Balloon mortgages include a note rate that remains fixed initially, and the principal balance becomes due at the end of the mortgage term
A balloon mortgage has an interest rate that is fixed for an initial amount of time. At the end of the term, the remaining principal balance is due. At this time, the borrower has a choice to either refinance or pay off the remaining balance.
There are no penalties to paying off a balloon mortgage loan before it is due. Borrowers may refinance at any time during the life of the loan.
Balloon loans typically have either 5 or 7-year terms. For example, a 7-year balloon mortgage with an interest rate of 7.5% would feature this interest rate for the entire term. After 7 years, the remaining loan balance would become due.
What is Private or Hard money lending, Private or Hard Money is when a private individual or small business loans another investor or investment company their own personal funds to use for investment purposes. In real estate, it's an alternative option for financing an investment property outside of a traditional bank or lending institution.
What Is a Private Lender
Private lenders are entities that loan money to individuals or businesses but are not tied to any bank or credit union. A private lender could be an individual or it could be an entire company. A private lender can fund many different varieties of loans, but two of the most common are real estate loans and personal loans.
Private lenders tend to have faster approval times than banks or credit unions, thanks to streamlined or informal application processes. Private lenders may also be more willing to work with people who have bad credit. Many online private lenders have minimum credit score requirements in the bad credit range. And individuals may not care all that much what your credit score is.
How Private Lenders Work
Loans from private lenders work just like loans from banks or credit unions. You receive funding to buy a property, make a purchase, consolidate debt, make home improvements or any number of other expenses. Then, you pay the amount you borrowed back in installments, with interest. That’s how the lender makes money.
Private Lending Companies
The first major type of private lender is a private lending company. Just like banks, these companies look to profit off of the interest you pay them. When it comes to personal loans, companies referred to as “online lenders” are private lenders that conduct all of their business over the internet.