How the FHA Streamline Refinance Program Can Help You
Many home buyers find that an FHA home loan is the best way for them to obtain a mortgage. They are able to enjoy the benefits of homeownership without having to put down a large down payment and do not have to have a super high credit score. The FHA has more products and programs than just loans for first-time buyers, however. The FHA streamline refinance program is one of the most popular.
If you currently have an FHA home loan and would like to refinance, the FHA streamline refinance program may reduce your interest rate and monthly payment quickly and easily. Reduced documentation and lower credit standards have made this a good choice for FHA homeowners in search of a monthly payment reduction.
Unlike most refinancing programs, the FHA streamline refinance program does not require W-2s, pay stubs, or other financial documentation. Since those with an FHA loan have already been determined to be a good risk, further proof is not necessary. Plus, refunds on mortgage insurance premiums (MIP) are possible with an FHA streamline loan. Depending on the age of the loan, you may be refunded the majority of your original mortgage insurance payment (called Upfront Mortgage Insurance Premium or UFMIP).
Reasons to Refinance with an FHA streamline loan
- Low rates
- Homes with reduced or no equity are eligible
- Does not require an appraisal
- Income documentation is not needed
- May include a partial mortgage insurance refund
- Quick closing and approval times
FHA streamline costs are lower since appraisals are optional.
The fact that an FHA streamline refinance loan does not need an appraisal makes it very appealing to borrowers who may be underwater on their loan. The FHA allows borrowers to use the purchase price as their home’s current value, without additional fees or penalties. While the FHA does not require a credit report, just about every lender will. Most experts say a credit score of 640 is the baseline for an FHA-backed loan product. However, some lenders will work with borrowers with lower credit scores, so it pays to shop around.
We work with several lenders and hence can shop around not just for lower mortgage rates but also more options if a traditional bank can’t approve your loan.
FHA Streamline Refinance Requirements
Borrowers with a good 12 month payment history on a current FHA loan can apply if they will benefit from the program. If you’ve had your loan for less than 12 months, all your payments must have been made on time. If your loan is older than 12 months old, you may have one late payment. No matter how old the loan is, you must have made the last three payments on time.
The FHA streamline requires that there be a “net tangible benefit” for the borrower. For instance, a noticeable decrease in the monthly payment clearly shows the loan would be beneficial. The program requirement is that the monthly interest rate must decrease by at least 0.5%, depending on the type of loan. Refinancing into or out of an adjustable rate mortgage will have different requirements. Your current FHA loan must be at least 210 days old.
Documents needed/suggested for application:
- Payoff note from the current FHA loan, showing the current interest rate and loan type
- Current mortgage statement
- Final settlement statement (final HUD-1) and FHA case number of your current loan
- Contact information for the human resources department at the wage earner’s place of employment (for verification of employment, not the actual amount paid)
- Two months of bank statements showing funds available for loan costs
- Contact information of homeowner’s insurance agent and current proof of insurance
- Proof of last mortgage payment
Each lender will have their own requirements. Some will ask you for fewer documents, while others will want more than we have listed here. While do you have to use an FHA-approved lender, you do not have to use your current lender for an FHA streamline refinance.
What is included in the FHA streamline refinance loan amount?
- Payoff amount of principal balance
- Interest for one month
- Mortgage insurance fee
Keep in mind that the FHA streamline refinance is not a cash-out program. Borrowers are allowed to receive no more than $500 cash from the refinance, which can only be due to changes in the calculations of closing costs. You should also know that you will have to pay closing costs, which are typically somewhere between $1,000 to $5,000. You can roll closing costs into the refinanced loan if you get an appraisal, though you have to have equity in your home for an appraisal to make sense. Otherwise, if you aren’t able to pay closing costs, you can ask the lender whether they offer lender credits. This usually means you will pay a higher interest rate.