What Is the FHA Streamline Program?
An FHA streamline refinance is a program available to current homeowners with existing FHA mortgages. These are mortgages backed by the Federal Housing Administration. They are suitable for lower-income families as they have lower requirements for credit scores and down payments than conventional loans.
With the FHA streamline program, you can refinance your FHA mortgage without getting a new appraisal. For the purpose of refinancing, your home will be considered to have the same value as when it was appraised to take out your mortgage.
FHA refinancing also involves less credit or income documentation than a traditional refinance. Since there is minimal paperwork and no appraisal required, the FHA streamline allows a homeowner to refinance a mortgage quickly and without much hassle.
What Is Refinancing?
Refinancing is revising the terms of your loan. If you are not happy with the terms of your current mortgage, or mortgage rates have since gone down, you can refinance and remortgage with more agreeable interest rates, payment schedules, or other terms.
To qualify for a refinance, you must have been paying for your mortgage for over one year. A homeowner can either get:
a) lowered annual mortgage insurance premium (MIP), or
b) fractional repayment of the upfront MIP amount
The Types of FHA Streamline Refinance
FHA streamline refinances come in two types:
- Credit qualifying—This kind of refinance involves a more intensive process. Your lender will check your credit score, debt-to-income ratio, and other factors to evaluate your ability to repay your mortgage.
- Non-credit qualifying—These refinances can be quicker and less onerous as they do not involve an evaluation of your current financial standing and credit.
Though a non-credit qualifying refinance is simpler, you may required to do credit qualifying refinance under certain circumstances. You may also elect to do a credit-qualifying refinance because you can qualify for a lower interest rate if you are in good financial standing.
You may also be able to find better rates by comparing quotes from different FHA-approved lenders.
FHA Streamline Guidelines
Though FHA streamlines may be simpler in some ways than other refinances, there are terms and conditions that apply. You should be aware of the following conditions:
- You will not qualify for a refinance if you are late or fail to repay your current FHA loan. Credit-qualifying and non-credit qualifying streamline refinances have different standards in this regard. But for any streamline refinance, the borrower must have a good history of on-time payments on their mortgage.
- You can only cash-out $500 through the refinance. This is not a cash-out refinance. If you’re looking to refinance for quick cash, this is not the program for you.
- You must wait a minimum of six months after your mortgage is issued to apply for a streamline refinance. There are some exceptions to this rule. For example, if you are splitting your home in a divorce and seeking a credit-qualifying refinance.
- There are closing costs involved in an FHA refinance that the borrower must pay.
- You can only refinance your primary home where you live. You cannot apply an FHA streamline refinance to a secondary property.
- You can only get a streamline refinance if it will lower the interest rate or term of your mortgage. If you are refinancing to extend the term of your mortgage in order to lower your monthly payments, the FHA allows you to increase your term by up to 12 years. However, extending the term will result in more interest accumulating over the length of your mortgage. The FHA requires that you offset the added interest by reducing the rate of your mortgage. This may be difficult to accomplish.
Rules for Adding/Removing Borrowers
Do the FHA rules allow a borrower to include or exclude a third party to the title when refinancing? Yes, they do.
For instance, a refinancing borrower who is getting married would want to include their spouse’s name in the title. On the other hand, a borrower who is divorcing would want to refinance in order to remove their ex-spouse from the title. In such scenarios, the FHA rules permit the borrower to add or remove a name.
You can add a name without even reviewing credit value because the FHA streamline does not give cash back to the borrower and you are reducing the interest rates and monthly repayments
Removing the name of a borrower on the title is a bit more complex. The FHA borrower must prove that they can manage the financial obligations of the loan without their former partner. They also need to present documents of their payments on the mortgage-canceled checks.
FHA Streamline Refinance Costs
With an FHA streamline refinance, the borrower must pay new upfront fees such as a mortgage insurance premium of 1.75%. They must also continue to pay monthly premiums.
You can add the upfront mortgage insurance premium into your new mortgage, increasing your mortgage amount. However, the same is not true of the other closing fees you must pay. If you are concerned about these closing costs, there may be options for a no-closing-cost refinance. However, you should be prepared to pay higher interest rates on these mortgages.
You should calculate the savings that you can access through an FHA streamline refinance and compare them with the upfront fees you will face. This can help you determine whether this refinance option is right for you.
FHA Streamline Refinance Pros and Cons
You should weigh the pros and cons of an FHA streamline refinance before committing to this financial decision. Here are some of the primary benefits and disadvantages:
- There is no appraisal. Instead, the lender will use the original sale price as the actual value, regardless of the home’s current worth. A safer option instead of dealing with other lenders who may be doing scams in refinancing.
- Even if the value of your property has declined, you can still refinance. You cannot get penalties for being underwater (owing more on your loan than your home is worth).
- Whether you work or not, you are free to refinance. There is no verification of income.
- A drop in your credit score cannot hinder you from refinancing with FHA.
- FHA loan rates tend to be lower than other mortgage companies.
- FHA loans taken out between 2010 and 2015 receive a reduced insurance premium with an FHA streamline refinance.
- The FHA streamline program is available for current FHA borrowers only.
- There is limited cash-back of only $500 max.
- The borrower must pay closing costs and UFMIP.
- An FHA loan does not remove Mortgage Insurance Premiums.
FHA Simple Refinance vs. Streamline
Whether a simple or streamline refinance best meets your needs depends on your situation.
If you are refinancing a home with a slight rise in value or that you plan to sell soon, a streamline refinance will likely be your best option. It eliminates extra closing costs on your principal. However, a simple refinance tends to come with less out-of-pocket costs overall.
You should speak with a certified financial professional to discuss what kind of refinance is most advantageous in your particular case.
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