If you hold an FHA mortgage now, you have the option of refinancing with the FHA Streamline Refinance program. This popular refinance program can make a lot of sense in certain situations, especially for those who are locked into an interest rate that is considerably higher than current rates.
Here are some great reasons to call a lender today and check out an FHA refinance loan:
#1 You Don’t Need an Appraisal
One of the most important aspects generally of the FHA Streamline Refinance program is that you do not need as much paperwork and documentation. One of these items is that the lender does not need to order a new appraisal for the new loan. A new appraisal is usually ordered to ensure that the home is worth what is being loaned out. This ensure that the lender would be able to sell the home for what it loaned you if you default on your obligations.
However, with an FHA streamline loan, the lender will use your original purchase price to represent the value of your home. This is a big deal because you do not have to worry about the appraisal coming in high enough, nor do you have to wait for the appraisal results to come back. You also may be eligible for an streamline refinance if you are underwater on your FHA loan.
#2 No Income or Employment Verification Is Needed
This also is a huge deal because one of the reasons people may refinance is they need to save money due to a job loss, or a reduction in hours. If you don’t have as much income, you might be having trouble with the mortgage payment. But with regular refinances, you would have to prove your income and employment. If you have been making your mortgage payments regularly until now, FHA will not need to verify your employment or income again.
#3 Credit Score Waived, with Exceptions
FHA streamline guidelines do not require a credit check for you to get a loan refinanced. However, some FHA-approved lenders might require you to have a credit score of 620. If you have poor credit due to a job loss, you may need to shop at several FHA approved lenders to find one that will do your refinance. Make sure you are talking to experienced companies that approved for FHA streamlines in your region.
#4 Rates Are Identical as Regular FHA Mortgages
One of the major benefits of an FHA mortgage is that the rate is below market in many cases. When you refinance, you can get the same rate as on your first mortgage. Many conventional refinance loans have a higher interest rate than a first mortgage. So this can be a money saver for you. In most cases, FHA streamline rates are as low as any other programs for home refinancing.
#5 No Pre-Payment Penalty
Some mortgage refinances will charge you a pre-payment penalty if you pay off your loan early. An FHA Streamline Refinance will not charge you a pre-payment penalty if you pay it off early. All of these reasons make getting a streamline refinance a good idea for many homeowners.
Before you pick up the phone to talk to your lender, you should know the requirements for getting an streamline refinance:
- The home you are refinancing has to be your principal residence
- You may not have had more than one late payment in the last year
- You must be totally current on your mortgage at closing
- If you have an adjustable rate mortgage, you have to be out of the introductory rate period before you can do a streamline refinance
- You have to get some sort of tangible benefit by doing the refi. This means you need to have a lower mortgage payment, including interest and insurance by at least 5%.
- Closing costs need to be paid with cash when you close, or paid for with adjusting to the financing, if the lender allows it. If this is done, you will have a slightly higher interest rate.
Also, if you think that you are going to move next year and you should not bother to refinance, this may not be the case.
An FHA Streamline Refinance has fewer costs than a traditional refinance, including no appraisal, so you may be able to break even on the new loan faster than you think. Like any loan, an FHA Streamline Refinance has advantages and disadvantages. Let’s break them down.
- You can qualify very easily. FHA financing is intended for people who have poor to average credit. If you have a credit score under 740 but above 640, you may look at conventional refinancing as well. If you have a credit score over 740, conventional financing is often better.
- No appraisal. As noted earlier, having no appraisal is a major advantage due to there being no question that the loan will go through, as far as the home’s value.
- Mortgage insurance: When you get a new FHA mortgage, you have to pay your upfront mortgage insurance premium again. If the loan to value is 78% or higher, you have to pay for mortgage insurance premiums each month. If your new loan was taken out after June 1, 2009, your mortgage premiums will be higher.
- Closing costs: All loans have closing costs. FHA states that you are not allowed to finance closing costs into the loan. You either have to pay in cash or you find a lender that will do a zero cost refi. This means that you will just pay a higher interest rate. So you are still paying closing costs.
For the majority of FHA loan holders, an FHA streamline refinance is a good option. It is very easy to qualify for, has relatively low costs, and the interest rate is very low. Most borrowers will be able to save hundreds of dollars per month. Remember that you may need to shop around for a lender that will work with your exact circumstances, but the FHA refinance loan will always be a good option for most people.