FHA Streamline Loans – What Are They and Are They for You?

FHA Streamline loans aren’t original mortgages. One of the requirements to qualify for an FHA streamline mortgage is that you have an existing mortgage through the FHA loan program. What this particular loan is most famous for, though, is saving borrowers time and money in the loan process. This is what you need to know about FHA streamline loans so you can make informed decisions about whether these loans are a good choice for you or not.

People choose to refinance their mortgages for many different reasons. It’s important to understand what the FHA Streamline Loan offers before deciding if this is the right refinance mortgage to meet your needs and help you achieve your goals. The primary reasons people refinance their mortgages are to do one or more of the following:

• Lower their monthly payments.
• Reduce the loan term (number of months or years you’ll ultimately pay for the home).
• The transition from an adjustable-rate to a fixed-rate loan.
• Secure a lower interest rate.
• Cash out equity in the home or to consolidate smaller loans into a single monthly payment.

Note: The FHA refinance loan doesn’t work for all these goals.

The FHA Streamline Loan only allows borrowers to do some of these things with the loan. However, it offers impressive benefits to borrowers who have those goals in mind.

What Can Borrowers Do with an FHA Streamline Refinance Loan?

Streamline refinance borrowers can use the funds from their loans to accomplish a lot of things. However, the requirement for borrowing with this loan stipulates that the loan must offer a benefit to borrowers by either:

1. Lowering their interest rates.
2. Converting from an adjustable-rate (ARM) to a fixed-rate mortgage.

For borrowers interested in accomplishing one of these two goals, this loan can be a real winner. At least, for those who qualify.

FHA Streamline Loan Benefits

Before making any decisions or learning about the requirements for an FHA streamline loan, one thing borrowers need to do is fully understand the benefits this type of loan has to offer. It’s called a streamlined loan for a reason.

Most loans require piles of paperwork to qualify. That isn’t the case with the FHA streamline loan. That means you can save time and money during the qualifying process for this refinance loan. These are just a few benefits that make the FHA Streamline Loan refinance program one that is well worth considering:

• No appraisal required. This can save borrowers up to five or six hundred dollars in some areas of the country. Perhaps even more.
• Will issue for “underwater” homes. That means you can even qualify for an FHA Streamlined Loan if you owe more on your home than its current value.
• No job verification requirement. This means that even if you’ve recently switched jobs or changed careers, you may still qualify for this refinance loan.
• No credit check. This is huge for borrowers who may have it a few rough patches along the way and are seeking to reduce mortgage costs so they can get back on track.
• No early payment penalties. This means borrowers can pay their mortgages off early without penalties from lenders, giving them greater control over their financial futures.

That doesn’t mean, by any stretch, that there are no requirements for the FHA Streamline refinance program. This loan option has some very stringent requirements.

FHA Streamline Loan Criteria

To borrow through the FHA Streamline Refinance Loan program, borrowers must meet certain, specific standards. Those who do not meet these standards will not be able to apply for or receive the loan, regardless of any other standards.

• The original mortgage must be an FHA mortgage.
• Perfect payment history. Mortgage payments must not only be current when the refinance loan closes, but there can be no late payments (30, 60, or 90-day late) within the last three months and only one late mortgage payment is allowed within the previous 12 months.
• The 210-day waiting period between one refinance and the next. Borrowers must make at least six on-time mortgage payments with their current FHA loans, after the most recent closing date, before they are eligible for an FHA Streamline Refinance loan.
• Refinance must have a purpose. There must be a benefit to the borrower of either lowering monthly payments (without extending the total cost of the home to the borrower) or transitioning from an ARM to a fixed-rate loan.
• Owners may not receive more than $500 cash from the transaction. In other words, owners cannot use the FHA streamline refinance loan to “cash out” the equity in their homes.
• Borrowers cannot wrap closing costs into the price of the loan. Owners must pay those out of pocket instead of the loan officer must credit the closing costs in full.

Even though you can’t cash out with the streamline loan, borrowers may elect to apply for an FHA cash out refinance loan that doesn’t offer the same benefits the FHA streamline loan offers, if cashing out is your primary goal.

Questions to Ask to Help Determine if the FHA Streamline Refinance Loan is Right for You

Is the FHA Streamline Refinance loan the right one for you? It isn’t the right choice for everyone. Asking the questions below can help you determine if this is the right financial move for you to make.

• Have you lost income since purchasing your home? Because the FHA Streamline loan process doesn’t require you to verify your current income, this won’t be a problem, provided you haven’t fallen behind on your home loan payments.
• Does your home have negative equity? No appraisals are required for the FHA streamline loan program. This means you may receive financing even if you are upside down on your current mortgage.
• Do you have less than 20 percent equity in your home? Many people discover that the FHA streamline mortgage insurance is cheaper than alternatives available through conventional mortgage lenders.
• Is your current mortgage an FHA loan? Your existing mortgage must be an FHA mortgage to qualify for the FHA streamline mortgage refinance program.
• Does your home need work? Since no appraisal is required to secure the FHA streamline mortgage refinance loan, it means rundown homes are acceptable and you are not required to make essential repairs before receiving the loan.
• Is your current interest rate higher than current mortgage rates? One of the best reasons to consider an FHA Streamline Refinance loan is to reduce the amount of interest you’re paying month after month. Not only can this lower the costs of your monthly mortgage; it can also reduce the length of time you have to pay on your mortgage.
• Have your most recent three payments been on time with an otherwise near-perfect payment history over the previous 12 months? You are only allowed to have made one late payment within the last 12 months and none within the past three to qualify for FHA streamline mortgage refinancing loans. Plus, your existing loan must be current on the day of closing for the new loan.
• Do you have enough money set aside for closing costs? While this can be a challenge for families who are struggling financially, the rewards of refinancing with the FHA streamlined mortgage loan make it worthwhile in many cases

Now that you have a better understanding of what this type of loan has to offer, it’s time to explore some of the finer details.

Mortgage Insurance Premium

While you do have to contain closing costs to get this particular refinance loan, you also have to pay a shiny new “upfront” mortgage insurance premium. This one catches many borrowers off-guard and it needs to be something you’re prepared for. For loans endorsed on or after June 1, 2009; the upfront mortgage insurance premium is equal to 1.75 percent of the total loan value. That means borrowers must pay $1,750 for every $100,000 borrowed. If your original FHA loan date is within three years of the refinance date, then a portion of the upfront MIP (mortgage insurance premium) will be refunded to you. The longer it has been, the lower the amount refunded.

With the FHA Streamline Refinance program, it is better to refinance sooner than later. Some borrowers will discover, that the current MIP rates are lower than their existing FHA loans. If that is the case for you, it is entirely worth your while to consider the Streamline refinance option – especially if you can lower your interest rates, loan duration, and monthly costs in the process.

Loans endorsed before the June 1, 2009 date mentioned above, have different requirements to consider for MIP. The upfront insurance costs are equal to 0.01 percent of the loan value. This means borrowers must pay $10 for every $100,000 borrowed at the time of closing.

The monthly costs for both MIP requirements are the same whether the loan is older or newer. These requirements work with the LTV (loan to value) of the home. If the LTV is greater than 90 percent, the annual MIP is 0.55 percent annually for the life of the loan. If the LTV is less than 90 percent, the MIP is 0.55 annually for 11 years.

Unlike conventional mortgage loans, FHA loans and FHA refinance loans require MIP payments for the duration of the loan.

What’s Not to Love About the FHA Streamline Refinance Option?

While there is a lot to love about the FHA streamline mortgage refinance loan, it is an option that isn’t the right choice for everyone. There are some drawbacks to consider. Not to mention the very real possibility that this type of refinance option doesn’t help you reach your financial goals.

For instance, because you can’t cash out the equity in your home, it makes things more difficult for borrowers seeking to consolidate debt or pay off other high-interest debt. It isn’t impossible with this method; it will simply take longer as homeowners can apply all the money they’re saving each month to get rid of other types of debt.

Now, because your credit score isn’t considered, you might want to think twice if you’ve worked hard to build your credit since buying your home. You may benefit more, provided that your home is in a good state of repair, by pursuing conventional or other FHA refinancing options that might reduce your interest rates even more.

There is no one-size-fits-all family solution for refinancing your mortgage. However, the FHA streamline program offers some exceptional food for thought among those who have specific needs in mortgage refinancing that might not be served through other loan programs. We can help you understand which loan or refinance program makes the most sense for your current situation so you can get the best possible home mortgage to refinance loan for your needs.