You decided it is time to refinance because you know that rates are lower and who wouldn’t love a lower payment, right? But how do you know which program to refinance with when you have an FHA loan? You are not restricted to using only the FHA program when you refinance, unless of course, you do not qualify for a conventional loan. But assuming that you qualify for both programs, which one offers the best deal? Generally, the FHA Streamline Refinance Program offers you a large variety of benefits that make it hard to beat!
The appraisal is often the one thing that holds consumers back from refinancing. Whether they are afraid that their value fell too much and has not quite recovered from the downfall or they do not want to pay for another costly appraisal, it holds many people back. The FHA Streamline program does not require an appraisal, though! It uses your original value when you obtained the original FHA loan. This gives you the opportunity to refinance your remaining balance and not have to worry about what your home’s value is now. That means even if you are underwater right now (you owe more than your home is worth) you can refinance. Obviously, if you are underwater, you would not be eligible for a conventional loan, which gives the FHA Streamline Program even more benefits.
No Debt Ratios
Debt ratios are often the killer when it comes to qualifying for a loan. Those pesky ratios of 28/36 for conventional loans are often hard to stick to in today’s world of ever-increasing prices. If you have taken on more debts since you first took out your FHA loan and your income has not changed, your debt ratio is higher than it was originally, which could make you ineligible to refinance your loan. This is not the case with the FHA Streamline Refinance Program though; you do not need to prove your debt ratio in order to lower your interest rate. All that the FHA cares about in order to guarantee your loan is that your mortgage payments are current and that the new payment including principal, interest, taxes, and insurance is lower than the original payment.
No Reason to Verify Income
The third and final reason to love the streamline FHA program is that the lender is not required to verify your income. You qualified for the FHA program originally and that is all that the FHA cares about. Since one of the requirements is to be on time with your mortgage payments, it is obvious that you can afford them and the new payment has to be lower in order to qualify, so there is no reason for the FHA to require lenders to re-verify the borrower’s income. As long as the mortgage payment is lower, you will qualify for the loan.
The key factor to realize here, however, is that the three reasons to apply for the FHA Streamline Refinance Program pertain to the FHA themselves; not every lender is going to let all of these factors slip by. For example, one lender might require an appraisal if they know that the values in your area have significantly dropped recently or another lender might require you to verify your income if they pulled your credit report and saw a large number of new debts since you took out the original FHA loan. There are not concrete guidelines stating what lenders can and cannot do with the exception of these rules:
- You must currently hold an FHA loan
- The payment on the new loan must be lower than the current FHA payment
- All mortgage payments must be current
The remaining guidelines are up to the discretion of the lender itself. What this means is that you will find different guidelines from lender to lender. Shop around with several lenders to see not only who will qualify you for the streamline program, but who will give you the best rate as every lender will differ in what they offer.