FHA Streamline Refinance
The Federal Housing Administration (FHA) Streamline Refinance program allows borrowers to refinance an existing FHA-insured mortgage with limited credit documentation and underwriting; as a result, the borrower is able to avoid a great deal of paperwork – often without even an appraisal – which makes the process much faster than usual and spares the borrower time and money.
Borrowers who qualify for a Streamline Refinance can reduce the interest rate on their current mortgage without a full credit check or income verification; however, the borrower needs to have paid their mortgage on-time over the course of the previous twelve months in order to qualify.
To put it simply, FHA Streamline Refinance loans have less paperwork, more simplified requirements for eligibility, and various other features that make them extremely attractive for borrowers.
One of the main reasons for the relative leniency of FHA Streamline Refinance loans is due to the fact that, as someone who already is in possession of an existing FHA mortgage in good standing, the borrower in question has already proven themselves as a solid credit risk. Therefore, borrowers who qualify are not required to calculate a debt-to-income ratio when they apply for a FHA Streamline Refinance loan; however, it always makes sense to make sure you verify your finances just to make sure all your ducks are in a row, so to speak.
When engaging a FHA Streamline loan, your new loan cannot exceed the original amount you borrowed to purchase your home. And while there may not be a need to get the value of your existing property reappraised, the option to do so is there in case said reappraisal will ultimately qualify you for a higher amount on your loan if the value of your property has increased since you purchased it.
In addition, you are not required to meet with your loan officer when applying for a FHA Streamline loans; a borrower may be able to simply apply on the phone, or even submit paperwork via the internet, if the lender allows it. But even if that is the case, the lender may require a physical signature upon some of the documents, so it may be necessary for the borrower to either meet the lender in-person, or at the very least sign some physical documents and mail them in to finalize the application process.
The main benefit with Streamline FHA-guaranteed loans is that your monthly payments are permanently lowered, and the extra money that they afford you in your monthly budget can assist you in achieving other financial goals as a homeowner.
Below you will find the official FHA guidelines for Streamline Refinance loans; however, some lenders may have additional requirements for borrowers to adhere to:
- The basic FHA requirements for Streamline loans include not allowing lenders to add closing costs in the new mortgage amount. A FHA Streamline Refinance is a good option for you if you are currently in good standing with your current mortgage, and are looking to save some money on your monthly payments.
- Your current mortgage that you’re looking to refinance must already be FHA-insured; in addition, you’ll need to apply with the usual employment verification, credit check, debt ratio requirements and other considerations.
- You must be current with your exiting loan; in other words, you cannot have missed any mortgage payments, and you must have made a minimum of six monthly payments in a row and have possessed your existing mortgage for at least 210 days to be eligible to apply for a Streamline Refinance loan. Late payments can count against your chance of qualifying for such a loan, but there are exceptions in FHA guidelines. For example, if you have had a FHA loan for less than one year and have missed your payment deadline by less than 30 days, you may not be automatically disqualified from a Streamline Refinance, depending on the policies of individual lenders.
- Finally, the FHA requires there to be a financial advantage over their existing loan for a borrower to take out a Streamline Refinance loan; in other words, acquiring a Streamline Refinance must reduce a borrower’s current monthly payments and make them easier for them to make on-time. If that is the case, the FHA is not held responsible if the borrower nonetheless defaults on the loan. The new interest rate should not exceed the original one, and the principal, interest, and MIP payment of the new mortgage must not exceed the combined amount of the existing mortgage by more than $50.
If a borrower meets all of these requirements, then a Streamline Refinance can be a great way for possessors of an existing FHA loan to reduce their monthly payments to a degree that it increases financial stability they may not have had previously.