Refinancing does not always have to mean tons of paperwork and jumping through hoops to qualify. If you currently have an FHA loan and simply want to refinance into a lower interest rate, you can do so with very little work. Does that sound too good to be true? It’s possible with the FHA Streamline Refinance. As the name suggests, this program makes it possible to refinance with just a few requirements to meet, most of which a majority of FHA loan holders will be able to do. If you obtained your FHA loan when interest rates were higher and you would love to have a lower payment, this program could be for you. Here are the requirements you must meet.
Your Mortgage History is the Most Important
The one thing that the FHA will not be flexible about is your mortgage payment history. The whole premise behind the program is to help you make your mortgage payments more affordable, but if you are not making your payments on time now, no bank is going to want to give you new money to start all over again, just to default in the future. The idea is that if you are making your current mortgage payments on time now, you will be able to continue making your new, lower payments on time, making the risk for the new bank very low.
Basically, here is what lenders look for:
- No late payments in the last 3 months, no exceptions
- No more than one late payment in the last 12 months (9 months before the last 3) and that late payment cannot be more than 30 days late
This type of history shows the lender and the FHA that you are serious about your mortgage payments and will continue to make them with a new lower payment.
You Must have Assets
Every refinance costs money, including the FHA Streamline Refinance. Lenders charge the standard closing costs on these loans and you have to be able to prove that you can pay them. This means that you have enough liquid assets in a checking or savings account to cover the costs. You cannot roll these costs into your loan; you can only roll the new upfront MIP into the loan. This means you will have to pay things like underwriting, processing, title insurance, and closing fees. Every lender charges different fees, so shop around with different lenders to see what it will cost you. The good news is that because the streamline program does not require a lot of work on the lender’s end, there are not a lot of fees that they will likely charge.
If you do not have the assets to pay the 1.75% upfront mortgage insurance premium, you can roll that into the loan, making your new loan amount the outstanding loan amount on your current FHA plus the upfront MIP. The total of your upfront MIP will be 1.75% of the outstanding loan amount minus any refund you receive from your current upfront MIP on your FHA loan. You are eligible to receive a refund if you originated your current FHA loan less than 36 months ago, but more than 6 months ago. If you fall between those two timelines, you will receive a refund of the amount of 10 and 70 percent.
Your Payment must be Lower
The final requirement the FHA needs to see is that your new payment is lower than the original payment since that is the point behind the loan. You cannot refinance a higher loan amount nor have a higher payment for any reason except for the following:
- You refinance from an adjustable rate mortgage into a fixed rate
- You refinance from a 30-year term into a shorter term
If either of these scenarios pertains to you, the new loan will be less risky for you and the lender, so even if the payments go up, the lender can accept your FHA Streamline application. In any other case, however, your payment must go down at least 5 percent in order to make the refinance worth it and to get approved.
The FHA Streamline program is a great way to make your mortgage payments more affordable. The FHA makes it so easy to qualify because of the benefits it provides to homeowners as well as lenders. In the end, it makes FHA loans even more stable, making it possible for the FHA to continue helping people become homeowners.