FHA STREAMLINE REFINANCE – WHAT IS IT AND HOW DOES IT WORK?
26 May, 2021
If you have an FHA loan, you may be eligible for an FHA streamline refinance. The streamline program lets you bypass the appraisal and get right to the reason you’re refinancing – to save money.
Here’s how the program works and how you may benefit.
What is the FHA Streamline Refinance Program?
The FHA streamline refinance program is a refinance program for current FHA borrowers with a solid payment history. It uses the original home appraisal and your mortgage payment history to qualify you for the loan. It’s a much simpler process than a standard refinance, yet it allows you to get a lower interest rate or change your loan term.
The FHA offers two streamline options:
- Credit qualifying – We check your credit and evaluate your debt-to-income ratio to make sure you can afford the loan
- Non-credit qualifying – We don’t check your credit, and only look at your mortgage payment history, checking for on-time payments
If you need to remove a borrower from the loan, you’ll need the credit qualifying FHA streamline refinance loan, otherwise, the non-credit qualifying is sufficient.
How to Qualify
The FHA streamline refinance requires little documentation, making it easy for current FHA borrowers to refinance their loans and save money. Here’s how to qualify:
- You must be current on your FHA loan payments and have no late payments within the last 12 months. A late payment is any payment made over 30 days late and reported to the credit bureaus.
- You cannot receive cash-out. The program is strictly to lower your interest rate or to get you out of a risky term, such as an adjustable-rate loan to a fixed-rate loan.
- You must have had the current FHA loan for at least 6 months. The only exception is if you apply for a credit qualifying streamline refinance and need to refinance due to unique circumstances, such as divorce.
- You must benefit from the refinance. Saving money from a lower interest rate or refinancing out of an adjustable-rate term both qualify.
FHA streamline borrowers don’t need a new appraisal. The FHA uses the original value of the home to refinance your loan.
The FHA Streamline Refinance Loan Amount
You don’t need an appraisal for the FHA Streamline loan because you may only refinance the outstanding portion of your current loan and any applicable closing costs (if you aren’t paying them out of pocket). The loan amount must fit within the original appraised value unless you pay for a new appraisal, but that defeats the purpose of the streamline program.
The streamline loan isn’t a cash-out refinance. If you want to tap into your home’s equity, you’ll need an FHA cash-out refinance which is a fully verified refinance program including credit, income, and appraisal.
FHA MIP Refund
Each time you take out a new FHA loan, the FHA charges Upfront Mortgage Insurance Premium, but if you use the FHA streamline refinance within 3 years of taking out your original FHA loan, you may be eligible for a prorated FHA MIP refund.
The FHA reduces your upfront MIP refund by 2 points for every month that passes between your original FHA loan and your refinance. The refund starts at 6 months because that’s when anyone is eligible for the FHA streamline refinance.
The refund starts at 70% of the mortgage insurance paid and decreases 2% each month until the 36th month, at which time you’d receive a 10% refund.
The MIP you’d pay on the FHA streamline refinance loan is equal to the difference between your new upfront MIP and the MIP refund.
Let’s say, for example, you borrow $200,000 today and you had your current FHA loan for 8 months. Your new upfront MIP is ($200,000 x 1.75%) $3,500. If your refund is $1,500, you’d pay $2,000 at the closing versus $3,500 for the new loan.
Is the FHA Streamline Refinance for You?
If you’re a current FHA borrower who can benefit from a lower interest rate or changing your loan’s term, the FHA Streamline Refinance may be a good option.
It’s quick and simple. You don’t need to verify a lot of information and yet can save money on your mortgage every month. With today’s low interest rates, now is a great time to take advantage of this program and the savings it offers.
Contact Valley Mortgage in Fargo, ND
If you’ve have an FHA mortgage currently and would like the opportunity to either lower your monthly payment or change the term of your loan, let’s talk. Our Valley Mortgage professionals are happy to walk you through your options and match you up with the perfect loan program. We have many options available for borrowers with almost any credit score, amount of equity, or home financing requirements. The FHA Streamline Refinance might be perfect for you!
Contact us for a no-obligation conversation. Valley Mortgage is the largest independent mortgage lender in North Dakota and northern Minnesota. We’ve be helping folks like you for more than 38 years. If you haven’t reviewed our website, click here. Please call us at 701-461-8450 to get all the details about home mortgages and refinancing. There’s no cost, no obligation. Valley Mortgage does all the processing right here in our Fargo, ND office.