FHA Streamline Refinance: Do You Want a Fast Closing?

If you have an existing FHA loan and aim to reduce your monthly mortgage payments, exploring an FHA Streamline Refinance could be beneficial. 

Let’s delve into understanding what an FHA Streamline involves, its functioning, and the advantages it offers.

What Is An FHA Streamline Refinance?

The FHA Streamline Refinance, a mortgage refinance option by the Federal Housing Administration (FHA), aids homeowners with existing FHA loans in lowering interest rates and reducing monthly payments. 

True to its name, an FHA Streamline offers a swift and simplified process, with some borrowers skipping the appraisal before closing.

Pros Of An FHA Streamline Refinance

Explore why opting for an FHA Streamline could be a beneficial choice for you.

Reduce Your Monthly Payment

FHA Streamlines offer a swift path to reduce your monthly mortgage payment by securing a lower interest rate. Nonetheless, strict FHA guidelines govern the process of achieving this reduced payment. For instance, extending your loan term by more than 12 years is not permissible.

 If you choose to lengthen your loan term to decrease your payment, you must also lower your interest rate, except when transitioning from an adjustable-rate mortgage to a fixed-rate one.

Refinancing is still an option, even if your home’s value is less than what you owe on it.

An FHA Streamline refinance stands out from many mortgage refinancing options by offering a solution even if you have an underwater mortgage, where your home’s value is less than what you owe. 

With an FHA Streamline, the refinance amount mainly depends on your current loan balance. This means that even if your home’s value has decreased, you could potentially leverage an FHA Streamline for refinancing..

Your lender might not require verification of your income or credit score.

There are two types of FHA Streamline Refinance loans that determine the need for income verification and a credit check by your lender. Let’s explore the two streamline refinancing options:

1. Credit-Qualifying Streamline Refinance:

This streamline refinance variant necessitates income documentation and a credit check by the lender, along with evaluating your debt-to-income ratio (DTI). If your refinance involves removing a borrower from the mortgage, this type applies.

2. Non-Credit Qualifying Streamline Refinance:

Under this refinancing category, your lender reviews your credit but considers fewer elements from your credit report. In a non-credit qualifying refinance, income verification may not be necessary, facilitating a quicker and simpler approval process.

Consider Skipping a Home Appraisal

A home appraisal provides an impartial and expert assessment of a property’s fair market value. Interestingly, FHA Streamline refinances typically forego the need for a home appraisal. This is due to the fact that the loan amount is based on the existing balance of your FHA loan rather than the current value of the property or the loan-to-value ratio (LTV).

You can usually close deals faster.

Due to reduced documentation and often no need for a home appraisal, the underwriting process quickens, allowing for a speedier closure on your streamline refinance..

Cons Of An FHA Streamline Refinance

Before proceeding with an FHA streamline refinance, it’s crucial to understand the trade-offs involved. Let’s delve into some key considerations.

Closing costs are a necessary part of the process.

Like many refinance options, the FHA streamline refinance necessitates the borrower to cover closing costs, which cannot be rolled into the new loan. 

Yet, your closing costs might decrease as you may avoid expenses for an appraisal or credit check. Some lenders may even cover your out-of-pocket closing costs, offsetting it with a slightly elevated interest rate.

Limited cashback available.

FHA Streamline refinances restrict cash-out amounts to a maximum of $500. These refinances aim to reduce mortgage payments. If you seek to withdraw cash, consider alternative refinancing options like an FHA cash-out refinance.

Mortgage insurance is a requirement.

To maintain an FHA loan, you must pay both an annual mortgage insurance premium (MIP) and an upfront mortgage insurance premium (UFMIP). 

The MIP safeguards your lender in case of loan default. Even after refinancing, MIP payments persist. 

Transitioning to a conventional loan, requiring a minimum credit score of 620 and 20% home equity, is the sole way to eliminate MIP.

Current FHA Streamline Refinance Rates

Rates are available in the form of a 5-year ARM (adjustable-rate mortgage) or a 15-year or 30-year fixed loan. 

Regardless of the option chosen, FHA Streamline Refinance rates are subject to frequent changes and may vary between borrowers, so be sure to check with us on the most recent rates available. 

Guidelines for the FHA Streamline Refinance

Explore the criteria necessary to be eligible for refinancing through an FHA Streamline.

Type of Mortgage Loan

To qualify for an FHA Streamline refinance, you must currently hold an FHA-insured mortgage. This streamlined option is not applicable for refinancing existing conventional or other loan types. 

However, you might be eligible for an FHA Streamline if you are refinancing a converted second home or investment property currently supported by an FHA loan. It’s important to note that equity requirements can vary, so we recommend consulting with a Home Loan Expert for personalized guidance.

Net Tangible Benefit

To qualify for an FHA Streamline, your refinance must present a net tangible benefit. Essentially, the refinance must align with the FHA’s criteria to be advantageous for you. The definition of this benefit depends on your loan specifics, but here are some broad guidelines:

• When shortening your loan term, ensure your new interest rate does not surpass your current rate. Also, your updated mortgage payment, covering principal, interest, and insurance premium, should not surpass the previous payment by more than $50 monthly. 
• If you opt to keep the term unchanged, specific guidelines dictate the allowable adjustments to your interest rate and insurance premium.

Timing

Guidelines for the timing between closing on your FHA mortgage and pursuing an FHA Streamline Refinance:

• Make a minimum of six payments on your FHA mortgage.
• Ensure at least six full months have elapsed since the initial mortgage payment was due.
• Wait at least 210 days from the closing date of the mortgage you plan to refinance.

On-Time Payment History

To be eligible for the FHA Streamline refinance, a consistent record of timely mortgage payments on your existing FHA loan is required. Here’s the breakdown:

• Over the last 6 months, there have been no instances of payments exceeding a 30-day delay.
• Within the previous 12 months, there has been at most one late payment that surpassed the 30-day mark.

FAQs: FHA Streamline Refinance

Explore some common inquiries regarding refinancing with an FHA Streamline.

Which documents are required for an FHA Streamline refinance?

• Minimal documentation is needed for an FHA Streamline refinance, but you’ll likely need to submit specific forms for your application. Depending on your qualifying Streamline refi type, required documents may include:
• Your current mortgage statement
• Your current FHA mortgage note detailing your loan
• The final settlement statement or Deed of Trust
• Homeowners insurance agent contact details
• Employment verification contact information
• 2 months’ bank statements to demonstrate financial capacity for any additional expenses.

Is there a need for income verification when pursuing an FHA Streamline Refinance?

Income verification isn’t usually needed for FHA Streamline Refinance applicants. Lenders often trust that if you’re keeping up with your current mortgage payments, you’ll maintain this with reduced monthly payments. Income verification might only be necessary if you require credit for eligibility.

How does an FHA Streamline refinance impact my credit score?

For applicants not requiring credit qualification, opting for the FHA Streamline Refinance is unlikely to have a significant impact on your credit score, as your lender assesses fewer aspects of your credit report.

In contrast, with the credit-qualifying alternative, your lender evaluates your credit score, credit history, and complete credit report. While this may lead to a slight decrease in your credit score, it is usually temporary.

Is it necessary to refinance with my current mortgage lender?

You have the freedom to explore different lenders for refinancing, not limited to your current one. Make sure to compare quotes to discover the ideal match. Yet, note that the FHA Streamline refi program caters exclusively to homeowners with an existing FHA mortgage.

Is it possible to utilize the FHA Streamline refinancing option multiple times?

You can utilize an FHA Streamline refinance multiple times, provided you adhere to the FHA’s criteria. This entails waiting at least 210 days from the closing date of your previous mortgage refinance and ensuring timely payments on your recent mortgage, among other considerations.

Consider this: Opting for an FHA Streamline Refinance could prove to be a wise choice.

If your current FHA loan is in good standing, you might be eligible for an FHA Streamline to reduce your mortgage payment. Meeting the Streamline requirements can expedite your mortgage refinancing process. This streamlined approach may enable you to refinance without an appraisal and potentially without income verification.

Ready to refinance? Explore Elevation Mortgage. Begin your application today or reach us at 719.247.6622.