If you currently have an FHA loan, it might not matter what your credit is like right now if you want to refinance. Granted, the FHA Streamline Refinance will be your only choice, but if your main goal is to lower your interest rate to make your payment more affordable, this program does just that. The FHA makes it very easy for current FHA customers to refinance simply because it makes the payment more affordable.
Basic FHA Streamline Refinance Requirements
According to the FHA, you only have to meet the following requirements:
- You must currently have an FHA loan in order to use this program
- You cannot be late on your mortgage payments as of the date of application; in addition, the 3 months prior to the loan must be current as well
- If there are any late housing payments, there cannot be more than one late payment in the 9 months preceding the most current 3 months
- Your FHA payment must be lower with the new mortgage due to a lower interest rate
- If you are refinancing from an adjustable rate mortgage or into a lower term, your payment can increase, but it must be affordable
- You may only refinance the outstanding portion of the principal plus the new upfront mortgage insurance fee
As you can see, nowhere in the requirements set forth by the FHA is the need to pull your credit. This will depend on the requirements of the lender you use, however. Most lenders will want to pull your credit to ensure that you are worthy of the new loan, but some might not. The best chance you have to avoid having your credit pulled is to use your current lender. As long as your housing payments have been current throughout the life of the loan or at least over the last 12 months, they may not pull your credit. This means you can have blemishes on your report and still get the new loan.
Why the FHA Does not Require a Credit Score
It seems odd that the FHA would not require a credit score on the FHA Streamline Refinance since it is such an important factor of any loan, but because the loan is strictly to lower your payment, it makes sense. If you are making your payment lower than it has been over the last few months or even years, the payment will only be easier to afford. This is why the FHA focuses on your housing history payments. For example, pretend your current mortgage payment including principal, interest, taxes, and insurance is $1,500 and after the refinance into a new FHA loan, the payment becomes $1,250, it is obvious that the new payment is easier to afford. If you were able to have a clear history and pay the $1,500 on time every month, the chances of you paying the $1,250 on time are even higher.
Remember that you can shop around with a variety of lenders. If you know you have a specific blemish on your credit report that brought your score down, shop around to find a lender that does not focus on the credit score. You might find that your current lender allows this or maybe even a lender that you never used before. As long as the lender is FHA approved, you are eligible to use them for the FHA Streamline Refinance program.