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How does the FHA Streamline work?

According to the U.S. Department of Housing Urban Development, the basic requirements of a streamlined refinance are the following:

  • The mortgage loan to be refinanced must be an FHA loan
  • The FHA mortgage loan to be refinanced must be current
  • The results of the refinance must net tangible benefit to the borrower. The outcome of a net tangible benefit varies from each borrower based on the type of loan being refinanced and the interest rate and/or term of the new loan
  • If borrowers use a streamlined refinance, cash over $500 may not be taken out on refinanced mortgages
Streamline refinances can be offered in several ways. First, lenders can offer “no-cost” refinances, which require borrowers to pay no out-of-pocket expenses. Instead, lenders will issue a higher interest rate on the new loan if the borrower decides to pay for the closing costs in cash.

Because of this, lenders pay for any closing costs that occur during this transaction. According to the FHA, lenders are not allowed to include closing costs in the new mortgage amount of a streamlined refinance. Simply put, using an FHA streamline refinance allows current FHA loan borrowers the option to lower the rate on their mortgage without meeting an extensive list of criteria.

What are the FHA Streamline programs?

FHA streamline is a refinancing program for current homeowners who have an FHA loan. If current FHA borrowers decide to refinance their mortgage, they can either refinance as a five-year adjustable-rate mortgage (ARM), or a 15, 20, 25, or 30-year fixed-rate loan. This program can be utilized under certain qualifications, such as:

  • Today’s mortgage rates are lower than your current mortgage rate
  • Homeowners owe more money than the home is worth
Depending on how much money is owed, your financial situation, and how long you anticipate living in the home, it will dictate which rate option is best for you.

What are FHA Streamline guidelines? How do you qualify?

To qualify for an FHA streamline, specific guidelines were implemented for potential borrowers to follow. First and foremost, borrowers must have an existing FHA loan. Because borrowers already have an FHA loan, lenders can approve people with fewer qualifications. For example:

No appraisal is required. The FHA streamline refinancing program does not require an appraisal because lenders can assume your home’s current value matches the home’s original price. This is used as an advantage if your home’s value has decreased since you first purchased it. Besides, since homeowners are not required to order an appraisal, they don’t have to pay for one, which helps save hundreds of dollars.

Lenders do not require borrowers to verify their employment status, income, or credit score. Lenders can approve a streamlined refinance without checking a borrower’s employment or income. They won’t even request a credit report to evaluate their credit risk. This is a huge advantage for FHA borrowers who want to refinance their loans. The process will be much quicker, and they can still get approved even if they have a low credit score, no income, or no home equity.

Although it may be easier to qualify, not everyone is eligible. Some lenders issue stricter guidelines on top of the FHA requirements. These additional qualifications are known as “lender overlays”, FHA borrowers should ask their lenders about them if they are thinking about refinancing. The FHA requires borrowers to have a financial payment history that consists of the following:

  • Borrowers must be current with their payments when they apply for a streamlined refinance
  • Borrowers must have paid the last six months’ payments within 30 days of the due date
  • Borrowers cannot be more than 30 days late twice in the past year
If borrowers cannot meet these requirements, they must wait to apply until these qualifications are met.

FHA loan borrowers who want to refinance must have a loan that is at least 210 days old and has made a minimum of six payments. In the mortgage industry, this is often referred to as “seasoning.” Lenders cannot start a streamlined refinance process without these requirements being met.

Applicants must also prove the outcome of their streamline refinance will have a net tangible benefit. This simply means the refinance will leave borrowers more financially stable than before.

Depending on whether the streamline is an adjustable or fixed-rate mortgage will also influence how net tangible your new loan will be. Your lender will be able to determine whether your new loan will meet this requirement.

What are the FHA Streamline refinance pros and cons?

A streamlined refinance offers several benefits for current FHA loan borrowers. Typically, homeowners look to refinance their mortgage, so they can decrease their monthly payments or shorten their loan term. However, with a streamlined refinance, there are several additional benefits.

For example, lenders do not need to check for a homeowner’s employment status, income, or credit score. This makes it easier for borrowers to qualify compared to traditional refinancing. Also, no appraisal is required, which saves homeowners even more money.

On the other hand, borrowers must set aside additional money for closing costs. If your streamlined refinance is not a “no-cost” transaction, lenders will require borrowers to pay for closing costs. These funds cannot be included in your new loan amount, so homeowners will need to have enough cash to cover the costs.

What are FHA Streamline refinancing costs?

Most commonly, borrowers will be required to pay for closing costs when they refinance an FHA streamline. The only difference with streamline refinancing closing costs is that it does not require homeowners to pay for an appraisal. Homeowners can expect to pay between $1000 and $5000 for FHA streamline refinancing closing costs. But, keep in mind this amount could be higher or lower depending on your new loan amount, down payment, and other factors.

If borrowers were to make a down payment of less than 20 percent of the home’s value, their lender will require them to purchase private mortgage insurance (PMI). Lenders can make borrowers pay for this premium upfront and add it to their new loan estimate. This mortgage insurance only protects the lender if the borrower stops making payments.

If you are interested in refinancing your current FHA loan or have any questions, reach out using the contact information below.

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