6 Ways FHA Enables People to Refinance a Mortgage with Below Average Credit

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An FHA mortgage is a great way for millions of Americans to buy their own home, especially for people with damaged credit and low fico scores. Down payments are as low as 3.5%, credit requirements are flexible, and interest rates are lower than conventional mortgages. If you like your FHA mortgage, you are going to love the FHA Streamline Refinance program! This program is open to people who have a current FHA mortgage and want to refinance it into a new, lower rate.

Like your original government mortgage, the FHA streamline refinance program has many fantastic benefits that makes it one of the best refinance options on the market.

FHA Streamline Refinance Overview

The Federal Housing Administration offers this refinance program so that you can refinance a FHA loan without a long qualification process. You can get a very low refinance rate in line with the current very low interest rates. And you don’t have to do nearly as much paperwork as a traditional refinance.

To qualify for this government program, you do have to be in a current FHA lien. The big reasons you may want to take advantage of an FHA refinance mortgages under the streamline are:

#1 No Credit Check

Many people who are in trouble on their mortgage and need a lower payment may have credit problems. Fortunately, the Streamline Refinance program allows you to refinance in many cases without a current credit check.

#2 No Appraisal Needed

FHA lets you use your original home purchase price as the representation of your home’s value. This will save you the cost of an appraisal, which can be up to $500. But the major benefit of no appraisal is that you may be eligible for a refinance even if you owe more on your home than it is worth. Many homeowners in America are underwater on their mortgage and are unable to refinance, but with an FHA streamline refinance, you can.

#3 No Income Verification Or Employment Check

If you need to refinance, you could have an employment or income problem. People who have lost their job may not have the money to pay their mortgage. This is usually a major obstacle to refinancing because the mortgage lender does an income and employment verification before extending the loan.

You will not have to worry about this with FHA refinancing. This can be a huge advantage because if you have lost your job, there is little doubt that your income has been affected. There also is little doubt that you need to refinance to save money. With an FHA refinance, you can do it.

fha refinance

#4 Process Is Faster

This type of refinance does not require nearly as much documentation as regular loans. Just not having to worry about an appraisal can save you a couple of weeks in turnaround time. If you have been putting off refinancing because you think there is too much hassle, there actually isn’t that much hassle with an FHA streamline refinance.

#5 Rates Are Same as FHA Mortgage

Since you have an FHA mortgage right now, you know how low regular FHA loan interest rates are. When you refinance with FHA, you enjoy the exact same low rate. With an interest rate that could be well under 4%, there is no doubt that you will be able to save up to hundreds of dollars on your mortgage each month.

#6 No Prepayment Penalty

Some mortgages charge you a prepayment penalty if you pay off your loan early, but you do not have to worry about this with an FHA streamline refinance.

The only exception here is that some individual FHA-approved lenders may have their own credit score requirements. It is possible that some lenders could check your credit. If you find that your credit score is too low to qualify for one lender, we recommend that you check other lenders to see if you qualify for their loan.

While the FHA refinance is a great program, there are certain other qualifications that you have to meet to qualify:

  • The home has to be your main residence. You cannot use the FHA streamline refinance program for a vacation or rental property.
  • You are not allowed to have had more than one late payment in the last year.
  • You have to be current on your original mortgage when you close. This program is not for people who are defaulting on their original mortgage.
  • You have to be getting some type of financial benefit from doing the refinance. This means that you have to be reducing your mortgage payment by at least 5%. Just having a shorter loan term does not count as a financial benefit; you have to be paying less per month.
  • Your closing costs, including title costs and origination fees, have to be paid with cash when you close or they can be rolled into a higher interest rate if you choose a no cost refi loan.

You cannot pay off a second mortgage with the Streamline program, but you can sometimes subordinate the second to your FHA streamline refi loan. You also are not allowed to do a cash out refinance with this Streamline loan.

If you do not have an FHA mortgage but are underwater and want to refinance, you do have other options. Millions of homeowners have taken advantage of the Home Affordable Refinancing Program or HARP.

This is the refinance program for Fannie Mae and Freddie Mac loans. VA loans also have a refinance program similar to FHA loans. You should talk to your mortgage lender to see if any of these are a good fit for your situation.

The FHA Streamline Refinance program is one of the best refinance programs on the market today. It works very well for people who may have had some credit and/or employment trouble in the past. By skipping much of the traditional documentation of a refinance, you could be on the way to paying hundreds less per month.