Is a Streamline Refinance Loan a Good Option?
Do you want to pay a lower monthly rate on your mortgage? A Federal Housing Administration (FHA) streamline refinance is the easiest way for borrowers to access a lower rate and reduce their monthly payments. Homeowners love this option because it comes without the traditional stack of paperwork and can be done without jumping over pre-approval qualification hurdles. Here, we’ll help you answer the question, “Is a streamline refinance a good idea?”
What Is a Streamline Loan?
An FHA streamline refinance refers to the refinance of an existing FHA-insured mortgage requiring limited borrower credit documentation and underwriting. The program allows homeowners with FHA-backed mortgages to refinance with less time, hassle, and paperwork. That makes it an overall quick, easy, and relatively painless refinance option for homeowners. The maximum loan amount for an FHA streamline refinance is calculated by subtracting the FHA mortgage insurance premium (MIP) refund from the current unpaid principal balance, then adding the new upfront MIP costs.
Two types of FHA streamline refinance options exist: credit qualifying and non-credit qualifying. Under a credit-qualifying streamline refinance, your lender is required to perform a credit check, calculate your debt-to-income (DTI) ratio, and assess your ability to continue paying your mortgage. The vast majority of homeowners who choose a streamline refinance opt for a non-credit qualifying program. That is mainly what we will be covering in this article today.
What Are the Benefits of a Streamline Refinance?
A streamline refinance is one of the most accessible options for homeowners today. It has many perks to offer borrowers. Following are some of the key benefits of this program:
- Low Refinance Rates. FHA loan rates are at incredible lows compared to other rates being offered by the mortgage industry. Homeowners are looking at a current average of 2.375% (3.352% APR).
- Lower MIP Rates. Borrowers who were approved for an FHA loan between 2010 and 2015 may be able to lower their annual mortgage insurance premium using FHA streamline refinancing. Check streamline refinance rates to see if this applies to you.
- MIP Refund. Most FHA loans require a one-time upfront MIP payment as part of the loan’s closing costs. FHA streamline refinance loans require this same MIP payment, but you may also be eligible for a refund of previous MIP payments. In most cases, to qualify for a prorated MIP refund, you must refinance to another FHA loan within the first three years. The amount you may be refunded starts at 80% of your MIP and decreases by 2% each month. So, homeowners who used the FHA streamline refinance program 16 months after taking out an initial FHA loan could be credited for 48% of what they paid on the original MIP.
- No Appraisal Necessary. The FHA does not require an appraisal on a streamline refinance. These transactions can be made with or without an appraisal. Homeowners with underwater mortgages are still eligible to use the FHA streamline refinance.
- No Verification of Job or Income. Homeowners who may have recently lost their jobs or have taken a pay cut are still in luck with an FHA streamline. The FHA does not require verification of borrowers’ employment or annual income as part of the FHA streamline process. That means there is no need to submit pay stubs, W-2s, or tax returns for approval.
- No Credit Check. A low credit score won’t stop you from using the FHA streamline program. Except for credit qualifying streamline refinances, FHA does not require a credit report. This is almost impossible to find with other refinance loans. The lender, however, may require this as part of its own credit policy.
Clearly, homeowners can expect to save on the headache of paperwork, in addition to overall monthly costs, when selecting an FHA streamline refinance. There are still a couple of costs that borrowers will want to keep in mind. The upfront MIP payment is a cost that comes to 1.75% of the total loan amount. The exception is for FHA loans that originated before April 2009; those require an upfront premium of only 0.01%.
Also, closing costs for an FHA streamline refinance typically total between 2% and 6% of the home’s sale price. However, closing costs can vary widely depending on the lender, borrower characteristics, and the loan amount. It is important to note that the closing costs cannot be added directly to the total cost of the mortgage for a streamline refinance. If you are concerned about covering the closing costs for an FHA streamline loan as a homeowner, talk to your lender about a no-cost refinance, but be prepared to be offered a higher interest rate.
Who Is Eligible for a Streamline Refinance?
Although the terms of an FHA streamline refinance tend to be in favor of borrowers, there are still some basic criteria that need to be met. The requirements of a streamline refinance are:
- The homeowner must be refinancing from an FHA-insured mortgage loan. FHA loans are already backed by the FHA. Because of that, an FHA streamline refinance is automatically backed by the government as well. However, an original FHA loan can be streamlined using a different lender if the borrower so chooses.
- The homeowner must be current on their monthly mortgage payments. The mortgage to be refinanced cannot be delinquent. Homeowners need to have made mortgage payments on time for the last six months.
- At least 210 days must have passed since the closing date of your current FHA loan.
- The refinance must result in a net tangible benefit to the borrower. While the definition of net tangible benefit varies based on the type of loan being refinanced, a net tangible benefit should indicate more advantageous terms for the borrowers, like a lower payment or shorter loan term.
Homeowners will want to keep in mind that cash in excess of $500 may not be taken out on mortgages refinanced using the streamline refinance process. Lastly, investment properties are only eligible for FHA insurance if borrowers are HUD-approved nonprofit borrowers, a state and local government agency, or an instrumentality of government.
Hero Loan is committed to helping veterans and active-duty service members position themselves to achieve their financial goals. Our lending experts provide a face-to-face, personalized experience for our deserving heroes. Our family-style team of passionate loan officers are trained in-house and recruited from the same communities we serve. We strive to streamline the entire refinancing process and close on deals faster for our customers, with plans that are tailored to each homeowner’s individual needs.
We strongly believe in giving back to our veteran community and proudly support the Fisher House project’s efforts. We are also proud to support veteran-owned businesses and local events that positively contribute to the lives of active-duty military, veterans, and their families. At Hero Loan, our customers matter to us, and our veterans are our heroes. Contact us today for more information on how we can help with a streamline refinance loan!
Call us today at (866) 222-0219 to speak with a representative or live chat with one of our lending experts online to find out more about how a streamline refinance can put you in a better position financially.