Homeowners who already have mortgages guaranteed by the Federal Housing Administration (FHA) may take advantage of a program called FHA streamline refinance, which streamlines the refinancing process to require less time, effort, and paperwork. You won't need to go through the FHA appraisal process again if you choose a streamline refinance. This is because the FHA has already determined what the property is worth.
Non-credit and credit qualifying FHA streamline refinance the two options available to borrowers. To qualify for credit-qualifying refinance, your lender must verify your credit, determine your DTI ratio, and evaluate ability to maintain your current mortgage payment schedule.
Because non-credit qualifying FHA streamline refinances are exempt from these restrictions, the question arises as to why you would want to go with the alternative that requires more work. Credit-qualifying streamline FHA refinance is necessary for some situations, such as removing borrower from mortgage. There is a silver lining, however, and that is the possibility that the additional paperwork necessary for credit-qualifying refinance may result in a cheaper interest rate than you would get with the non-credit qualifying version.
Only homeowners with FHA loans are eligible for the streamline program; however, just because you already have an FHA loan does not imply that you are required to refinance with the same lender. Different lenders may have different criteria and cost structures for FHA loans. Finding the best bargain for an FHA streamline refinance may be accomplished by comparing the terms offered by several lenders.
FHA Streamline Refinance Working
Since the 1980s, the FHA has made it possible for homeowners whose mortgages it insures to undergo a simplified refinancing process. Reducing the quantity of documentation that must be completed and the number of procedures that must be taken is beneficial to borrowers and lenders. As with any refinance, the aim is to minimize the monthly payment that the homeowner makes toward both the interest and the principal. On the other hand, the amount of cash that may be taken out of the refinanced mortgage can be, at most, $500.
On a streamline refinance, the FHA does not require an appraisal of the property. Instead, it uses the original purchase price paid by the homeowner. A credit report is also optional, even though the bank granting the money could demand one.
Because they often need lower down payments and credit scores, FHA-insured mortgage loans are popular among first-time homeowners. This is because the Federal Housing Administration guarantees FHA loans. However, only financial banks that the FHA has approved can provide these mortgages.
When the borrower signs the mortgage, they agree to pay an upfront cost equal to 1.75 percent of the loan amount, also known as up-front mortgage insurance (UFMI), and yearly fees for mortgage insurance premiums total between 0.45 and 1.05 percent of the loan amount.
Requirements
The most important condition for an FHA streamline refinance is to provide proof that there will be a net tangible gain. In practice, this indicates that the homeowner must demonstrate to the FHA that refinancing will be to their measurable financial advantage to qualify for the program. This net tangible advantage may be accomplished by shortening the length of the mortgage, lowering the interest rate, or doing both of these things.
Therefore, a homeowner would not qualify for an FHA streamline refinance, for example, if the new mortgage reduces the monthly payment merely by increasing the total number of payments due over the loan. The property owner will continue to pay the same amount over time, and there has been no overall financial gain.
Costs
One of the possible drawbacks of an FHA streamline refinance is that you will be required to pay a new upfront mortgage insurance premium and will also have to continue making monthly premium payments. Except for FHA loans generated before April 2009, which demand a far lower advance premium of just 0.01%, the upfront premium is 1.75%.
If you are using an FHA streamline refinance, you can roll the upfront mortgage insurance payment into a greater loan amount as part of the refinance. However, this option is not available for any other closing fees. If you are worried about meeting the closing fees for FHA streamline loan, you can look into no-cost refinance; however, you should be aware that interest rate you are charged will be higher. Don't forget that the need for a "net tangible advantage" implies that the numbers have to work in your favor when all expenses are considered.
