Have an FHA loan with a rate that's beyond what you'd pay today? Have yet to refinance because you think you're not a candidate? You're paying too much, plain and simple. And the streamline refinance may be everything you didn't know you needed to improve your loan - and your bank balance.
"The FHA Streamline Refinance is a special mortgage product, reserved for homeowners with existing FHA mortgages," said The Mortgage Reports. "FHA streamline refinances are the fastest, simplest way for FHA-insured homeowners to refinance their respective mortgages into today's mortgage rates."
Lenient Approval Process
In a nutshell, a streamline refi can lower your rate, and therefore your payment, without going through any tedious approvals. It's a simple process with little effort needed on the part of the borrower, and it applies to those who may not qualify for other refinancing programs because of a change in job status or a poor credit score.
"A streamline refinance offers several advantages for homeowners who are looking to save on their mortgage," said smartasset. "With no credit check or employment verification required, it's relatively easy to qualify compared to a traditional refinance."
Many people with an FHA loan may not have received the most favorable rates when they purchased because of their combination of credit score and down payment. In a typical scenario, a borrower could lower their initial interest rate from 4.75 to 3.75 after a minimum of six months by doing a streamline refi and save hundreds of dollars per month. In addition, a streamline refinance can help borrowers take advantage of a new rule for 2014 and beyond that reduced Private Mortgage Insurance (PMI) fees; this will lower their monthly payments even further.
"Your existing loan's MIP is 1.35 percent of the loan amount each year, while your new loan will have an MIP of just 0.85 percent thanks to the recent rule change," said The Mortgage Reports. "That change saves you about $500 per year for each $100,000 of your loan amount."
There is also no appraisal needed for a streamline refi, so the value of your home today is essentially irrelevant as it relates to the approval. Even if you owe more than it's worth, you can still qualify.
"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," said The Mortgage Reports. "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."
While there are no approvals and appraisals, there are a few qualifications:
- You have to be current with your loan payments.
- You have to wait six months from the date of your home purchase
- You can't take cash out.
- "The streamline refinance must reduce your mortgage payment by at least 5 percent," said HSH.com.
Costs of the loan
Like any mortgage, streamlined refis have closing costs; these can range between $1,500 and $4000, according to My Mortgage Insider. But that doesn't mean the borrower has to pay for them out of pocket.
"Lenders want your business," they said. "Loans with streamlined processes are in high demand. They take lenders less time and manpower to get through the system compared to other loan types." Because of this, lenders will often negotiate/