How FHA Streamline Refinancing Can Help You Save Money
A simple method for restructuring your home loan
Do you currently have an FHA home loan and need to restructure it? Are you underwater on your FHA mortgage? Is the interest rate on your FHA loan too high? If so, then you should consider refinancing with the FHA Streamline refinance program. As the name suggests, the FHA Streamline refinance program gives you a quick, simple, and stress-free solution for restructuring your Federal Housing Administration home loan. And, if you don't want to read our hefty tome on the topic, contact us at home.loans for an quick, in-person review.
Why you should consider refinancing with FHA Streamline:
Also known as the FHA IRRRL (Interest Rate Reduction Refinance Loan), FHA Streamline refinancing is an opportunity to modify your FHA loan to make it even more affordable and manageable. As a homeowner already in an FHA loan agreement, the qualification for FHA Streamline Refinance is not difficult. Of course, the FHA Streamline Refinance loan is still guaranteed by FHA. The purpose of this program is to further reduce the risk of borrower default by giving homeowners even easier terms. As the Federal Housing Administration is the guarantor of all FHA loans, it's in its best interest for none of its applicants to default. So if conditions allow for easier terms then you have more financially stable households with manageable mortgages, which is a mandate of the FHA.
The FHA Streamline refinancing loan is offered as either a 5 year ARM, 15 year fixed rate mortgage, or a 30 year fixed rate mortgage. While the cash out is limited at $500, (unlike with FHA Cash Out Refinancing) it's a useful loan program to lock in low market rates, get better loan terms, and/or change your FHA adjustable-rate loan into a fixed rate mortgage. Is also gives you the chance to reduce or stop payments toward the monthly insurance premium. After all is said and done, its main purpose is to reduce your monthly payments.
No Home Appraisal Required
One of the major reasons for the popularity of the Streamline program is the fact that you will not need to get your home appraised. Lenders offering FHA Streamline refinancing use your original FHA loan paperwork as a base for the documentation. This approach truly makes for a stress-free refinance process.
Not having to get a home appraisal benefits the borrower in a few ways. For starters, you save time, as scheduling a home appraisal and dealing with the attached documentation tends to slow down closing in many cases. If time isn't your concern, then perhaps you will be happy to know that ditching the home appraisal step will save you money at closing as well. Often times, borrowers are required to pay out of pocket for a home appraisal, which can be pricey.
The greatest benefit, however, is that using the original documentation means that lenders only take into consideration the value of your home when you first entered into an FHA home loan agreement. So for homeowners with mortgages that are currently underwater, the FHA streamline refinance is still the perfect way to refinance your mortgage! Removing the limitations on your loan-to-value (LTV) ratio has given many homeowners across the country the chance they needed to get the refinancing they want and deserve after the housing market's ups and downs over the years.
FHA Streamline Refinance Pros:
- There is no home appraisal required, which saves you time and money. The FHA will assume the value of the home at the closing of the original FHA loan.
- You can apply even if you're underwater with your current mortgage (or if the home value decreases) and allows for really high loan to value ratios (LTVs) that would exclude you from many other refinance options
- You do not have to prove income or credit worthiness. Your employment status and credit score are not necessary, an attractive benefit for those going through financial struggles.
FHA Streamline Refinance CONs:
- Only available to FHA loan borrowers
- Loan costs can't be rolled into the loan. If you're unable to get a no cost loan, it will be an out-of-pocket expense.
- Although the FHA has low requirements, lenders may have their own requirements that borrowers must adhere to.
- As with all FHA loan products, borrowers with less than 20% equity must pay mandatory mortgage insurance premiums
How to Qualify for the FHA Streamline Refinance Program
Qualifying for an FHA Streamline refinancing loan is a simple, easy, and inexpensive process. This has lead to their overall popularity, especially among home owners who have had or are currently facing financial hardships. Eligibility requirements for FHA Streamline refinancing program are some of the easiest to meet in the entire industry! Why? In addition to not requiring a home appraisal, the FHA removed the need for income verification, proof of employment, and even credit checks! That means eligibility is extended to homeowners who:
- Owe more on their loan than their home is worth (i.e. with no home equity, underwater, or upside down on your mortgage)
- Are currently out of work (or between jobs)
- Have no source of income
- Have a really low credit score
As you can see, It really is that easy to be eligible for an FHA Streamline Refinance loan. So what DO you need to qualify for the loan program? Well, in order to fulfill the remaining requirements, certain criteria must be met, including:
- Homeowner must be current on all FHA loan payments, and you may not have missed more than one payment in past year. If you missed more than one payment you can try the following year after maintaining all payments.
- The FHA loan being refinanced must be at least 210 days old and you must have made at least 6 payments toward it.
- You must show that there is a net tangible benefit to refinancing the loan. You have to demonstrate that you will benefit and be better off with the refinancing.
Although the FHA itself has low requirements and eligibility criteria, lenders are able to request that borrowers adhere to their criteria as well. These lender stipulations can make it difficult to get approved by some lenders, which is why it's important to shop around for different lenders and choose the one with the best offer.