FHA Streamline Refinance Loans
The Federal Housing Administration insures mortgages for borrowers who meet certain qualifications, allowing them to qualify for loans even when their credit and/or income may be lacking according to conventional guidelines. In some cases, however, a borrower who has already obtained an FHA loan may wish to refinance the loan. One of the easiest ways to refinance an FHA loan is through the streamline mortgage refinance program.
What Is the FHA Streamline Mortgage Refinance Program?
The FHA streamline mortgage refinance program is a program that allows borrowers to refinance their FHA loans with limited credit documentation and a faster, more efficient underwriting process. Like all other refinance loans, an FHA streamline refinance will pay off your original loan and replace it with a new loan that has different terms. After the refinance is complete, you will make payments on the new loan, and your old loan will be closed.
What Are the Requirements for FHA Streamline Refinance?
- The basic requirements of the FHA streamline program include:
- The mortgage you wish to refinance must be insured by the FHA.
- The refinance must result in a net tangible benefit for the borrower, such as a lower payment or a significantly lower interest rate. The net tangible benefit test is somewhat complicated, but a lender can help you determine whether you meet the requirements.
- The borrower cannot take any more than $500 in cash out during the FHA streamline refinance process.
- The borrower must be current on the existing mortgage. It cannot be delinquent.
- The loan being refinanced must be “seasoned.” This means that the loan must be at least 210 days old and the borrower must have made at least six payments toward the loan.
An approved FHA streamline refinance lender can help you determine whether your loan will qualify for this program by accessing your current loan in the database.
How Does the FHA Streamline Refinance Loan Work?
The FHA streamline refinance loan can be offered in several different ways, and lenders are able to structure their programs according to their preferences. An FHA streamline program can offer both non-credit qualifying and credit qualifying options. Lenders can also decide whether to charge closing costs when underwriting an FHA streamline loan.
The FHA streamline program works similarly to other types of loan programs, except that the underwriting process is simplified and expedited. For the borrower, this means that the application and approval process will be completed more quickly and with less stress.
How Much Does an FHA Streamline Loan Cost?
Like all loans, FHA streamline refinances are associated with costs. The cost of an FHA streamline loan for the borrower varies. Some lenders may advertise “no-cost” FHA streamline refinances. However, this simply means that there won’t be any “out-of-pocket” costs for the borrower. The borrower may still cover closing costs by paying a higher interest rate. Because FHA does not allow closing costs to be rolled into the balance of a new loan with any FHA streamline refinance program, the lender must cover these costs on their own if they want to offer a loan at no cost to the borrower. In many cases, lenders will charge a higher interest rate to make up the difference, so it is important for borrowers to compare options carefully before agreeing to this type of loan.
FHA Streamline Guidelines for Paperwork and Credit
Unlike most other mortgage loans and refinances, the FHA streamline refinance process requires only a limited amount of paperwork. In most cases, these loans can be approved without the documentation of the borrower’s employment status, credit or income. Not only does this make it easier for borrowers to qualify for these loans, but the relaxed FHA streamline guidelines also speed up the approval process, allowing the borrower to complete a refinance faster.
FHA streamline refinance lenders are not required to list a minimum credit score when developing the qualifications for these programs. Thus, it is possible to qualify for a streamline refinance from FHA even if you have a low credit score and negative marks on your credit report, if your mortgage is current at the time of your application and closing.
About FHA Streamline Refinance Rates
The interest rates charged on an FHA streamline refinance loan vary considerably, and different FHA streamline refinance lenders have different policies. For example, when a borrower opts for a no-cost loan, the rate charged will typically be higher than the interest rate that would apply if the borrower was willing to pay the closing costs out of pocket.
FHA Streamline Refinance Mortgage Insurance
When you use the streamline program to refinance an FHA mortgage, your new mortgage is still insured by FHA. This means that you will continue to pay mortgage insurance after the refinance is complete. However, depending on the current FHA mortgage insurance rates and the rates that were active when you took out your original loan, you may pay a different amount in mortgage insurance than you did originally. In some cases, you may even qualify for a refund of the mortgage insurance you paid on your original loan.
Talk to an FHA mortgage lender to learn more about how FHA mortgage insurance guidelines will affect your refinance.
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