The FHA Streamline Refinance is a special mortgage product, reserved for homeowners with existing FHA mortgages. FHA Streamline Refinances are the fastest, simplest way for FHA-insured homeowners to refinance their respective mortgages into today’s mortgage rates. The FHA Streamline Refinance program’s defining characteristic is that it does not require a home appraisal.
Instead, the FHA will allow you to use your original purchase price as your home’s current value, regardless of what your home is actually worth today. In this way, with its FHA Streamline Refinance program, the FHA does not care if you are underwater on your mortgage. Rather, the program encourages underwater mortgages. Even if you owe twice what your home is now worth, the FHA will refinance your home without added cost or penalty. The “appraisal waiver” has been a huge hit with U.S. homeowners, allowing unlimited loan-to-value (LTV) home loans via the FHA Streamline Refinance program. Homeowners in places like Florida, California, Arizona and Georgia have benefitted greatly, as have homeowners in other states and cities affected by last decade’s housing market downturn. Beyond this “no appraisal” feature, however, the FHA Streamline Refinance behaves very much like any other loan product. It’s available as a fixed rate or adjustable mortgage; it comes as a 15 or 30-year term; and there’s no FHA prepayment penalty to worry about. Another big plus is that FHA mortgage rates are the same in the FHA Streamline Refinance as with a “regular” FHA loans. There’s no penalty for being underwater, or for having very little equity.
Another big plus is that the FHA Streamline Refinance is fairly easy for which to qualify. Earlier this decade, in an effort to help U.S. homeowners, the FHA abolished most of the typical verifications required to get a mortgage. So, today, as it’s written in the FHA’s official mortgage guidelines: Employment verification is not required with an FHA Streamline Refinance, income verification is not required with an FHA Streamline Refinance, and credit score verification is not required with an FHA Streamline Refinance
There’s no need for a home appraisal, either, so when you put it all together, you can be out-of-work, without income, carry a terrible credit rating, and have no home equity. Yet, you can still be approved for an FHA Streamline Refinance.
That’s not as crazy as it sounds, by the way. To understand why the FHA Streamline Refinance is a smart program for the FHA, we have to remember that the FHA’s chief role is to insure mortgages, not “make” them. It’s in the FHA’s best interest to help as many people as possible qualify for today’s low mortgage rates. Lower mortgage rates means lower monthly payments which, in theory, leads to fewer loan defaults. This is good for homeowners that want lower mortgage rates and for the FHA, but mostly for the FHA.
Although the FHA Streamline Refinance eschews the “traditional” mortgage verifications of income and credit score, as examples, the program does enforce minimum standards for applicants. The official FHA Streamline Refinance guidelines are below. Note that not all mortgage lenders will underwrite to the official guidelines of the Federal Housing Administration.
The FHA’s main goal is to reduce its overall loan pool risk. Therefore, its number one qualification standard is that homeowners using the Streamline Refinance program must have a perfect payment history stretching back 3 months. 30-day, 60-day, and 90-day late payments are not allowed. One mortgage late payment is allowed in the last 12 months. Loans must be current at the time of closing.
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.
Streamline Refinance applicants must demonstrate that there’s a Net Tangible Benefit in the refinance, which is 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. Another allowable Net Tangible Benefit is to refinance from an adjusting ARM into a fixed rate loan. Taking “cash out” to pay bills is not an allowable Net Tangible Benefit.
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.
For some FHA-backed homeowners, annual mortgage insurance premiums are temporary. The FHA makes this determination based on the amount of home equity at the time of closing. For homeowners using the FHA Streamline Refinance to replace a loan from on, or after, June 1, 2009, the FHA MIP cancelation schedule is as follows: Loan-to-value of 90% or less at the time of closing with MIP required for 11 years and loan-to-value greater than 90% at the time of closing with MIP required for life of loan. The FHA MIP cancelation policy is the same for 15-year loan terms as for 30-year loan terms. Refinancing homeowners are welcome to reduce their loan balance at the time of closing to avoid paying MIP for the loan’s life. In many cases, this will require an up-to-date appraisal of your home.
FHA mortgage rates are low and closings can occur in as few as 20 days. And, the faster you close, the bigger your FHA upfront mortgage insurance premium refund. Take a look at today’s FHA mortgage rates. Rates are available with no social security number required to get started, and with instant access to your live mortgage credit scores.
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