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FHA Streamline Refinance for FHA Home Loans

The FHA streamline refinance program is a refinance option with relaxed credit and underwriting guidelines which requires less paperwork from the borrower than a traditional refinance. The FHA streamline refinance is only available to home owners who currently have a FHA home loan.  Home owners who have a VA loan, or Fannie Mae/Freddie Mac loan will not be able to use an FHA streamline.  There are, however, several other options available for these home owners.

Contact our home lending experts to see if you qualify for an FHA streamline.

Qualification Requirements

  • Income – One of the features that help to “streamline” the loan approval process is how income is documented, or how it’s not. The FHA streamline loan requires no documentation of any sort when evaluating an FHA streamline application. See how easy the FHA streamline can be by contacting us here.

On almost any other type of loan, the lender must determine whether or not the borrower can afford the new monthly payments by examining things like pay check stubs and tax returns.  But the FHA streamline refinance eliminates this requirement.  In some cases, the lender may call your employer to check if you are employed. But this is a simple 30-second phone call by the lender that does not require extra hassle for you.

  • Credit Requirements – Although the FHA does not require a credit check for a streamline, most lenders will pull your credit to see if you comply with their standards. Lenders sometimes impose additional requirements on top of those stated by FHA.

One of the most important things your lender will check is how you’ve paid your FHA mortgage over the past year. For an FHA streamline, you can’t have more than one 30 day late payment in the past 12 months and no late payments over the previous 90 day period. If you are curious about your credit profile, our licensed lenders can confidentially take your information and pull your credit for you.

  • Appraisal Requirements – FHA streamline loans do not require a new appraisal which would normally cost $350 or more. Instead, the lender considers the original purchase price of the home as a basis for determining current value.

FHA streamline loans aren’t “value-centric” as other mortgage programs. This means that you may be eligible for an FHA streamline refinance even if you are currently “underwater” on your home.  Find out if you are eligible for a streamline refinance.

Maximum Loan Amount & Closing Costs

FHA limits your loan amount to be no more than your current loan balance plus the FHA upfront mortgage insurance premium (UFMIP).

For FHA streamlines without an appraisal, you typically have to pay for closing costs out of pocket. Your lender may have options to provide a credit to offset all or part of your closing costs.

To see if you could benefit from a lender credit on your FHA streamline loan, complete our simple online contact form.

If you want to roll loan costs into the new mortgage, you’ll need to apply for an FHA streamline with an appraisal. There is still no income documentation required, but you’ll need to pay for an appraisal and have enough equity in the home. Your new loan amount must be no more than 97.75% of the appraised value.

For example, if your appraised value is $100,000, make sure your existing loan balance to be paid off, plus all closing costs, is no more than $97,750. Keep in mind that this is only for those who want to wrap in closing costs. Otherwise, an FHA streamline without an appraisal is allowed for homes with no equity.

What are some of the FHA Streamline limitations?

  • No Cash Out -The FHA streamline refinance allows no cash out at closing. The loan amount is limited to the outstanding loan balance plus a new upfront mortgage insurance premium, or UFMIP. Even if the lender provides you with enough credit to cover loan costs, cash out is not allowed.
  • Tangible Benefit – While there is no mandatory interest rate drop with an FHA streamline, the FHA does require that the lender determine a “net tangible benefit” for the borrower. Typically an adequate benefit is defined as a 5% drop in the overall principle, interest, and mortgage insurance payment.

For instance, if your principle, interest, and mortgage insurance payment is $1000, it must drop to at least $950 for you to refinance.

Check with us if you are refinancing into or out of an adjustable rate mortgage (ARM) loan. In some cases, you may be able to refinance without the 5% reduction rule.

  • Occupancy - FHA streamline refinance loans do not require you to occupy the property, but you must provide evidence that you once did. Sometimes a borrower purchases a home with an FHA loan, but is forced to move out and rent out the property. In these cases, FHA allows you to refinance the home with an FHA streamline, even though you are not living there. Contact us if you have an investment property you’d like to refinance.
  • Payment History – Your lender will examine recent payment history on the existing FHA loan. There must be no payments paid more than 30 days past the due date during the most recent 90 day period. Additionally, there can be no more than one payment paid 30 days past the due date within the previous 12 month period.
  • Seasoning. As a lender reviews the application, regardless of any tangible net benefit to the borrower, the existing FHA loan must show a minimum of six payments made. In addition, at least 210 days must pass between the closing date of the new refinance and most recent closing date on the existing mortgage. To put it simply, there is an approximate six-month waiting period between FHA loan closings.
Questions and Answers about the FHA Streamline Loan Program

Can I borrow funds for home improvements with the FHA streamline loan?  No, the FHA loan does not allow additional funds to be included with the new loan amount and only the outstanding principal balance and new upfront mortgage insurance premium (UFMIP) can be included with the new loan.

What is UFMIP and Do I have to Pay it in Cash?  UFMIP is the acronym for Upfront Mortgage Insurance Premium. It is the fee that FHA charges on just about every FHA loan to defray the costs of the program. As of April 2013, the fee is typically 1.75% of the full loan amount. So if you open a $100,000 mortgage, your final FHA loan amount will be $101,750.

For FHA streamlines, you can wrap this fee into the new loan and do not have to pay it out of pocket. If you wish, you have the option to pay it out of pocket, which reduces your loan amount. Most FHA borrowers finance it into the new loan.  Learn how much you can save.

I won’t be able to make my payment this month until the 20th, is that considered late?  For purposes of FHA underwriting, no. While FHA prohibits no more than one late payment within the previous 12 months and no late payments in the last 90 days, FHA considers a late payment to be more than 30 days past the due date. If you make your payment on the 20th, the payment is not considered late enough to disqualify you from the program.

However, keep in mind that if you make your payment past the 15th, you are usually subject to late fees. To make sure you avoid extra costs, you should try to make your payment each month as close to the 1st as possible.

If I can’t roll my closing costs into the loan, how can I pay for them?  Ask your lender to adjust your interest rate enough to provide a lender credit. To do this, a lender increases your interest rate above market rates, and gives you a lender credit. The higher the rate, the more credit is available for you to use toward closing costs.

For instance, if the market rate is 3.5% with no lender credit, a 3.75% rate may yield a lender credit of 1% of the loan amount. Keep in mind that these are only examples of how credits work, and your lender’s rate and credit combinations may be very different.

Lender credits may not work for you if the higher interest rate means that you do not meet the requirement that the monthly payment must drop by 5% (called “net tangible benefit”). Or, your loan amount may be too small to provide a significant lender credit. For instance, if your loan amount is $50,000, even a 2% lender credit would only amount to $1000, probably not enough to cover all closing costs. Lender credits work best for those with bigger loan amounts and a comparatively high interest rate on their current mortgage.

Can I refinance from a 30 year loan to a 15 year fixed rate loan?  A loan term reduction is not allowed using an FHA streamline. Those looking to reduce their FHA loan term should look into refinancing the FHA loan with a conventional mortgage, or with a new FHA loan that will require an appraisal and income documentation.

Can I refinance my hybrid ARM loan even though it’s still fixed?  Yes, a hybrid can be refinanced whether it is in the initial fixed period or the adjustable period which occurs after the fixed period. Different net tangible benefit rules apply in each instance. Ask your lender if you meet these requirements.

I’m underwater on my home and I have a conventional mortgage, can I use the FHA streamline loan to reduce my rate?  Unfortunately, no. The FHA streamline loan program is only for FHA-to-FHA transactions. If you have a conventional loan and want to refinance even though your mortgage balance may be greater than your current value, you may be eligible for the Home Affordable Refinance Program, or HARP.

Apply for an FHA Streamline Refinance here.

Are you ready to apply for an FHA streamline refinance, or have more questions on this loan? Contact our FHA streamline experts for a free rate quote. They will answer any questions you may have and tell you how much money you can save with an FHA streamline refinance.