If you’ve been looking into refinancing, you may be worried about how much paperwork will be involved. You likely remember meeting several requirements to get your current mortgage. These same requirements can come with a refinance loan, but not in all cases.
The FHA streamline refinance loan is different from many other refinancing options you may have learned about, as it is often much simpler to get.
Not having to provide several forms of documentation is just one of the benefits of FHA streamline refinance.
What Is FHA Streamline Refinancing
The term FHA streamline refinance refers to a mortgage refinancing option available to homeowners who bought their home using an FHA Loan.
It’s considered “streamlined,” because it has fewer requirements than most other refinancing options, giving homeowners a simple, straightforward way to make their mortgage more affordable.
An FHA streamline loan also allows homeowners to take advantage of some of the lowest interest rates available.
10 Reasons to Consider an FHA Streamline Loan
1. No Appraisal
To be eligible for an FHA streamline loan, you don’t need to get a new appraisal done on your home.
The home appraisal you had done when you first purchased your home is still considered valid to represent your home’s value and condition. This can be of particular value if your mortgage is “underwater,” or your mortgage amount is for more than your home’s assessed value.
2. Save On Interest
When you initially purchased your home, the interest rate you received was based partly on the current market value at that time. Today, interest rates are at historically low percentages.
By choosing to refinance your mortgage now, you can swap your higher interest rate for a current, lower one. This can help to lower the monthly amount of your payment, putting a little extra money back into your wallet.
3. Low Or No-Cost Options Available
The FHA streamline refinance offers both no-cost and low-cost options.
For the no-cost option, the lender pays your closing costs fees. This option will typically have a higher interest rate as a way for the lender to recoup the out of pocket expenses of paying your closing costs.
The low-cost option refers to only having to pay the closing costs. Because the FHA streamline is less complicated, there are fewer associated costs to process the loan, such as paying for an additional home appraisal.
4. Shorten Length Of Mortgage
Another one of the benefits of FHA streamline refinance is the ability to shorten your mortgage term. This can save you the hundreds or thousands of dollars you would have paid in interest payments over the lifetime of the loan. This will help you pay off your home faster.
5. Convert Your Adjustable-Rate Mortgage Into A Fixed Rate
An adjustable-rate mortgage (ARM) can be a good choice for some borrowers hoping to achieve specific financial goals within a defined timeframe. They can be particularly beneficial for many first-time homeowners or borrowers interested in an initial lower interest rate.
Most borrowers find that as interest rates fluctuate, ARMs eventually become more costly than is worthwhile.
This is where switching to a fixed-rate mortgage becomes a beneficial choice and reduces your worries surrounding market volatility and how that may impact your interest rate.
6. Your Credit Score Has Improved
If your credit score has improved since you initially applied for your mortgage, you can use that to reduce the amount of money you have to pay.
In general, the higher your credit score, the lower the interest rate you’ll have to pay.
7. No Penalty For Extra Payments
Another one of the popular benefits of an FHA streamline refinance is the ability to make extra payments without penalty. You aren’t penalized if you want to pay off your mortgage early, either.
8. Get The Same Rates As Regular FHA Loans
FHA streamline refinance loans have lower borrower credit requirements.
With traditional mortgages, lower credit scores often mean higher interest rates. The FHA offers the same low rates for streamline refinance mortgages as they offer for other mortgage loans.
9. No Income Documentation, W2s, or Tax Forms Required
Arguably one of the most appreciated benefits of FHA streamline refinance is its reduced documentation requirement.
Because you provided income verification when you initially took out your FHA mortgage, you don’t need to do it again. The FHA streamline refinance considers your initial eligibility as also being valid for your refinance. There’s no requirement to get copies of your W2s, tax returns, or proof of income from your employer.
10. Fast Processing Timeframe
The FHA streamline refinance loan has some of the quickest processing timeframes for loans today. Because of the reduced documentation requirements and fewer steps to go through, many applicants see loan approval within as little as three weeks.
Requirements For FHA Streamline Refinancing
The FHA streamline refinance requires less documentation, but there are several conditions that need to be met to be eligible. In addition to currently holding an FHA mortgage, the following also needs to be true:
- Your mortgage must be up to date with no missed or partial payments.
- No late mortgage payments within the last six months and only one late payment is permitted for the year.
- You must get a net tangible benefit from the refinance. In other words, there has to be an actual, real-world advantage.
- Refinancing has to lower your interest rate, mortgage payment, and mortgage insurance by at least 5%.
- You can’t get a new loan for more money than your first mortgage amount.
- Your original mortgage must be at least 210 days (approximately seven months) old.
- You have to pay all closing costs, either in cash at closing, or you can opt for a “no cash” option and a higher interest rate. In this case, you’ll still need to meet the net tangible benefit requirements.
Yes, the FHA streamline refinance requires closing costs just like any other loan. Closing costs are comprised of fees from various people involved with your loan. They include fees for things like loan origination, underwriting, processing, and title insurance. These costs can range from $1,500 to $4,000 depending on the lender and loan amount being refinanced. Your upfront mortgage insurance premium payment, however, can be rolled into your loan. Lenders will sometimes waive closing costs in order to get you as a client so be sure to shop around for lenders.
No, you will still have a monthly mortgage insurance payment. You will also need to make an upfront mortgage insurance premium at closing.
Yes, the streamline refinance is backed by the Federal Housing Administration.
Cash outs for FHA streamline refinance are restricted to $500
There are two different types of FHA Streamline refinance: credit qualifying and non-credit qualifying. In a non-credit qualifying refinance, a new credit check won’t be ran. That means that even if your score has fallen before the 580 minimum for an FHA loan, you can still qualify for the streamline refinance. However, if you think your credit score is higher than when you first applied, it’s a good idea to go with a credit-qualifying refinance. The lender will run a credit check and calculate your debt-to-income ratio, and if they’re better than before, you could qualify for a better rate on the refinance.
Borrower must be current for at least six months on their mortgage.
While a typical refinance loan process can take 45 to 60 days, FHA Streamline refinancing can be processed in about a month to a few weeks. Since you’re already an FHA customer, and FHA-approved lender will have your paperwork already on file.
Reach Out to River City Mortgage for your Refinance
At River City Mortgage we can help you navigate these requirements to help you move forward with an FHA streamline refinance.
The benefits of FHA streamline refinance can offer an uncomplicated way to reduce your monthly mortgage payment and lower your interest rate.
If you’re interested in finding out more about whether it’s the right choice for you and your home, reach out to the FHA specialists at River City Mortgage. If you’re ready to move forward, apply online.
We’re here to help and we look forward to sitting down with you to ensure you’re taking the right steps to make your mortgage and your home as affordable as possible.
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