What is an FHA Streamline Loan?
If you own a home you still owe mortgage payments on, chances are you’re examining your refinancing options. In today’s economy everyone needs a way to lower monthly payments and make housing more affordable.
The FHA has a variety of refinancing options to make owning a home more affordable, including FHA Streamline loans. FHA Streamline loans are designed for people who already have FHA mortgages. FHA Streamline loans have reduced paperwork, simple requirements for eligibility, and a list of features that make FHA Streamline financing very attractive for borrowers:
· Lower your monthly payments - permanently
· Home re-appraisal not required
FHA Streamline loans make lowering your monthly payment easier than ever. Plus, the extra money you have at the end of the month can go a long way toward helping you reach your financial goals.
What are the Requirements for an FHA Streamline Loan?
Just as with your original FHA insured loan, there are requirements:
· The home must still be your primary residence
· You must be current on your original loan
· Your original loan must be an FHA loan
What is the Difference Between FHA Loans and FHA Streamline Loans?
Below are some of the key differences between FHA Loans and FHA Streamline Loans.
Loan Balances May Not Increase To Cover Loan Costs
The FHA prohibits increasing a Streamline Refinance's loan balance to cover associated loan charges. The new loan balance is limited by the math formula of (Current Principal Balance + Upfront Mortgage Insurance Premium). All other costs -- origination charges, title charges, escrow population -- must be either (1) Paid by the borrower as cash at closing, or (2) Credited by the loan officer in full. The latter is called a "zero-cost FHA Streamline".
Appraisals Not Required
The FHA isn't concerned about home value -- it's insuring your loan regardless. Therefore, the FHA does not require appraisals for its Streamline Refinance program. Instead, it uses the original purchase price of your home, or the most recent appraised value, as its valuation point. Homes that are underwater are still FHA Streamline-eligible.
General Rules
The FHA provides lenders with a comprehensive list of rules they must follow. However, for homeowners looking to refinance their mortgages, there are several basic rules that must be followed. The mortgage must be an FHA-insured mortgage--you cannot use a non-FHA mortgage and do a streamline refinance. The streamline refinance must result in a lower monthly principal and interest payment for the borrower. You cannot take cash out on an FHA streamline refinance.
Streamline Differences
Streamline refinances must lower monthly payments and cannot involve cash out except minor adjustments made at closing. Some HUD forms are still required, but some, like the Home Buyer Survey, are not. Credit reports on streamline loans are not required by the FHA, but lenders have the option of requiring them to meet their own rules.
Who is Eligible for an FHA Streamline Loan?
Although the FHA Streamline Refinance avoids the "traditional" mortgage verifications of income and assets as examples, the program does enforce minimum standards for applicants. The official FHA Streamline Refinance guidelines are below.
Perfect, 12-Month Payment History Is Required
The FHA's main goal is to reduce its overall loan pool risk. Therefore, it's number one qualification standard is that homeowners using the Streamline Refinance program must have a perfect payment history stretching back 12 months. 30-day, 60-day, and 90-day late payments are not allowed. Furthermore, loans must be current at the time of closing.
210-Day "Waiting Period" Between Refinances
The FHA requires that borrowers make 6 mortgage payments on their current FHA-insured loan, and that 210 days pass from the most recent closing date, in order to be eligible for a Streamline Refinance.
Employment and Income Are Not Verified
The FHA does not require verification of a borrower's employment or annual income as part of the FHA Streamline process. Lenders have the option of requiring them to meet their own rules required for approval.
The Refinance Must Have "Purpose"
Streamline Refinance applicants must demonstrate that there's a Net Tangible Benefit in the refinance; a legitimate reason for refinancing. Loosely, Net Tangible Benefit is defined as reducing the (principal + interest + mortgage insurance) component of the mortgage payment by 5 percent or more. Refinancing from an ARM into a fixed rate loan is an automatic Net Tangible Benefit. Taking "cash out" to pay bills is not an allowable Net Tangible Benefit.