Who is it for?
If you’re a homeowner with an existing FHA loan and are looking for ways to lower your monthly payments without having to provide large amounts of credit documentation and undergo extensive underwriting, an FHA streamline refinance could be the perfect solution. This refinancing option is designed to simplify the process with minimal paperwork and hassle.
What is an FHA streamline refinance?
An FHA streamline refinance is a mortgage refinancing option through the Federal Housing Administration (FHA) available to homeowners with an existing FHA loan. “Streamline” refers to the simplified process requiring less documentation and underwriting than a traditional refinance. This program is designed to help borrowers reduce their monthly mortgage payments by lowering their interest rate or switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
How does an FHA streamline refinance work?
The FHA streamline refinance process is speedy and simplified.
Eligibility
You must have an existing FHA loan and a current (not delinquent) mortgage to qualify.
Net tangible benefit
The refinance must result in a tangible benefit to the borrower, such as a lower interest rate or a more stable loan term.
According to the US Department of Housing and Urban Development (HUD), a net tangible benefit is defined as a 5% reduction in the principal and interest (P&I) of the mortgage payment plus the annual mortgage insurance premium (MIP) or refinancing from an Adjustable-Rate Mortgage (ARM) to a fixed-rate mortgage. A simple reduction in the loan term is not considered a net tangible benefit.
No cash-out
You cannot take out more than $500 in cash from the refinance.
Simplified Documentation
Depending on the type of streamline refinance, you may not need to provide income verification, a new appraisal, or a full credit check.
Four benefits of FHA streamline refinance
1. Lower monthly payments
One of the primary benefits is the potential to lower your monthly mortgage payments by securing a lower interest rate. See net tangible benefit.
2. No appraisal required
In many cases, you can skip the home appraisal, which can save time and money.
3. Simplified process
The streamlined process means less paperwork and faster approval times than traditional refinancing.
4. Flexible credit requirements
Even if your credit score has declined since you took out your original FHA loan, you may still qualify for an FHA streamline refinance.
While the FHA streamline refinance offers many advantages, it also has a few potential drawbacks. For example, if you need to access your home’s equity, this program is unsuitable since it does not allow cash-out refinancing. Although the process is streamlined, there are still closing costs associated with this loan. Some lenders may offer “no-cost” refinances by charging a higher interest rate, but you must be sure that accepting this higher rate still allows for a net tangible benefit.
There are some restrictions on when you can apply for an FHA streamline refinance. According to the FHA guidelines, you must have made at least six payments on your FHA loan, waiting at least six full months since the first payment was due, and at least 210 days must have passed since the closing date of your FHA mortgage.
An FHA streamline refinance can be an excellent option for homeowners looking to reduce their monthly mortgage payments or switch to a more stable loan. Its simplified process and flexible requirements offer a convenient way to refinance your existing FHA loan. If you’re considering this option, contact one of our loan officers to discuss your eligibility and the potential benefits.
Ready to refinance? Get started with one of our experienced loan officers now.
