The FHA Streamline Refinance is a great way to lower your monthly payment on your FHA loan. The process, as the name suggests, is very streamlined, requiring very little from you as the borrower. If you obtained your original FHA loan when rates were higher than they are today, it is worth looking into the benefits of this lucrative loan program. Before you do, here are the answers to the most common questions regarding the streamlined process.
Do I have to use the same lender?
No, you do not need to use the lender that originated your current FHA loan. You are free to use any FHA approved lender for the refinance. Not every bank will offer the streamlined program, however. You may also run into lenders that are very picky about who they approve for this program, so you may need to shop around a little bit to find the perfect lender for you.
Does my credit score matter?
Technically, you do not need to worry about your credit score in order to get approved for the FHA Streamline Refinance. However, most lenders would say otherwise. The FHA does not require that your credit report gets pulled for the process to begin, but because the FHA does not provide the funds, they do not have the final say in what the lender does. Most lenders want to know that you have at least a 620 credit score before they provide you with new funds on a streamlined refinance.
Does my credit history matter?
Just because your credit score might not play a role in your ability to get approved for the streamline program, does not mean that your history does not play a role. What matters most is the housing history, of which most lenders can get directly from the lender, but will likely obtain from your credit report when they look at your score too. In general, you are not allowed to have more than 1 late housing payment within the last year and your most recent three month housing history prior to the application for the refinance must be on time.
Does my income matter?
Income is usually the core of any mortgage application as it is what determines if you can afford the new mortgage. However, with the FHA Streamline Refinance, you do not need to verify your income. The FHA allows lenders to use the income verified on the original loan. Again, most lenders are not willing to take that risk unless they were your original lender and you have a flawless payment history. Most lenders will verify your income, ensuring that you have the same or a similar job and that your income has remained the same. In defense of this requirement put forth by the FHA however, because the streamline program reduces your mortgage payment, it is acceptable to not verify your income because a lower payment will be easier to afford in the long run.
Does my payment have to decrease as a result from a refinance?
The general idea behind the streamline program is to decrease your payment, saving you money every month. Of course, like everything else there are exceptions to the rule. There are two situations in which your payment may increase:
- If you decrease the term, for example, refinancing from a 30-year term to a 20-year term, it will result in a higher payment but decreased risk for the lender
- If you change from an adjustable rate mortgage to a fixed-rate mortgage, your payment may increase, but because the payment is fixed, it is less risky for the banks than a non-predictable adjustable loan
In these cases, it is acceptable for your payment to increase rather than decrease. If you are refinancing strictly for the rate and are not changing the term or the type of loan you have, then your payment must decrease in order for you to get approved.
Can I roll the closing costs into the loan?
Generally, the loan amount for the FHA streamline program is restricted to the outstanding principal of the original loan plus the upfront funding fee and one month of interest costs. The closing costs and any other expenses must come out of your own pocket. The streamline program is not to provide you with cash at the closing or to help you pay off a second mortgage – it is strictly to reduce your payment and save you money every month.
Can I get a refund on my upfront MIP from the original loan?
This is a common question and it has a great answer! The upfront MIP that you paid on the original loan is refundable on a prorated basis. In general, you have to refinance within 3 years of the original loan in order to receive any portion of the upfront MIP that you paid back. The percentage you are eligible to receive depends on the length of time you had the loan. It starts at the six-month point after your loan as that is the first date you are eligible to refinance. At that point, you would receive 70 percent of the upfront MIP that you paid back as a refund towards the new upfront MIP on the new loan. The amount goes down 2 percent per month from there, ending at 10 percent on the 36th month.
Do I need an appraisal?
This is another question that might differ from lender to lender. If you use the original lender from your FHA loan, you might not need an appraisal. On the other hand, if you use a new lender or it is known that your area has significantly decreased in value, an appraisal might be required to ensure that you are not so far upside down on the home that you have the chance of just walking away from it and not losing anything. Most lenders want borrowers to have some portion of equity in the home to make the loan less risky.