For homeowners with an existing FHA-backed mortgage, the FHA Streamline Refinance program is among the fastest, simplest ways to refinance a home at today’s low rates. Being a true streamlined refinance, the FHA’s main refinance program waives the typical verifications required for a home loan refinance including credit score checks, income verifications, and even home appraisals. This means, as long as you have made your last few mortgage payments on time, you can be eligible for the FHA Streamline Refinance Loan Program.
The FHA Streamline Refinance is truly a “streamlined” mortgage program. There are little paperwork requirements with verifications being waived. It’s a program that is possible only because of the FHA’s role in the U.S. housing market. Since its creation in 1934, the FHA has never created any loans. Instead, it’s they have only insured them. Currently, the agency is the largest insurer of mortgage loans in the world. As an insurer, the agency’s FHA Streamline Refinance is a stroke of genius. The FHA is insuring your loan anyway, after all, so if the agency can help you lower your monthly payments, of course it’s going to do it. When your mortgage payment drops, there’s less chance that you’ll default on your loan. This means that the FHA’s streamlined refinance program actually helps the FHA — which is an insurer! — to reduce the number of claims against its fund. All you have to do is show that you’ve made at least six payments on your current loan; that your loan has been paid on-time for the last 90 days; and, that there’s an actual benefit in your refinance, and you can expect to be approved. Many FHA Streamline Refinance loans close in 30 days or fewer.
The FHA Streamline Refinance program waives many of the requirements of a traditional refinance but, still, not everyone will be approved. There are a few minimum eligibility standards borrowers are required to meet. First, borrowers must show a perfect 3-month payment history. This means that your credit report may not show even one 30-day, 60-day, or 90-day late within the last three months; and you must be current on your loan at the time of closing. Second, borrowers must show that they’ve made at least six mortgage payments on their current loan in order to refinance it via the FHA Streamline Refinance program. The program consists of six total payments, not six months of payments. And, third, the FHA Streamline Refinance requires that borrowers save at least five percent on their monthly mortgage payment in order to be eligible, where “mortgage payment” is defined as the sum of your principal and interest payments, and your monthly FHA mortgage insurance premiums (MIP). This 5% savings is known as the Net Tangible Benefit. Alternatively, a borrower can show a Net Tangible Benefit by refinancing from an FHA ARM to a fixed-rate loan. Note that not all lenders adhere to the FHA’s official loan guidelines for the FHA Streamline Refinance — some institute additional qualification standards, known as “investor overlays”, which may include a verification of employment or income. If your loan is turned down because of an investor overlay, consider re-applying with a different home loan lender. Not all banks enforce the same streamline rules.
All FHA mortgages requires mortgage insurance premiums to be paid, and FHA Streamline Refinance loans are no different. Some streamline borrowers can get access to huge discounts on their FHA MIP. The standard FHA MIP rate is 1.75 percent of your loan size, added to your loan at closing. In addition, borrowers are expected to pay varying rates of FHA MIP paid annually based on their current borrowed amount and loan-t0-value (LTV). However, remember that the FHA Streamline Refinance waives the need for home appraisal. Therefore, LTV is not based on your home’s current value but, instead, on its last reported value to the FHA. For many borrowers, that will be the value of your home on the date of original purchase.
For homeowners whose current FHA loans pre-date June 1, 2009, though, the FHA offers an MIP discount. Borrowers with mortgages from before the cut-off date are eligible to pay just 1 basis point (0.01%) of MIP upfront, and just 55 basis points (0.55%) per year over the life of the loan. Your mortgage lender will automatically apply your FHA MIP savings at the time of application.
The FHA Streamline Refinance is as fast and pain-free as a mortgage loan can be. Plus, with mortgage rates below historical levels, it’s an excellent time to consider your FHA loan today. The FHA Streamline Refinance Loan Program is the perfect next step for anyone currently carrying a FHA Loan.
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