The FHA Streamline Refinance is the perfect program for borrowers that want to refinance strictly to get a lower interest rate. This program allows you to refinance from an FHA loan into another one with very little work, hence the name “streamline.” Just how much work is involved and how do you qualify? Let’s take a look.
The minimum requirements for the FHA Streamline Refinance are much different than the qualifications for a standard FHA loan. Generally speaking, the FHA allows lenders to automatically refinance a current FHA holder as long as he meets the minimum housing payment requirements. As far as a credit score, there really is not a minimum necessary. In fact, the FHA does not require that a borrower’s credit get pulled in order to qualify for the loan. If you qualified for the original FHA loan, you could qualify for the new one as long as you are doing one of the following:
- Lowering your interest rate on your fixed rate loan and therefore lowering the payment, making the mortgage more affordable
- Refinancing from an adjustable rate mortgage into a fixed rate mortgage to make your loan less risky
- Reducing the term of your original FHA loan from a 30-year term to something lower
Where does the Credit Score Come into Play?
Generally speaking, your credit score does not matter. What the FHA cares about the most, since they are the group that insures your mortgage, rather than the group that funds it, is that you are able to lower your risk of default. What better way to lower than risk than to lower the payment? That is the whole point behind the program. If you are able to have a lower payment or have a payment that is fixed for the next 20 to 30 years rather than adjusting year after year, the FHA is in a much better position because your risk of default decreases dramatically.
This is the reason your credit score really does not have an impact on your ability to qualify for the FHA Streamline Refinance program. However, there are exceptions to the rule – some lenders will require that they pull your credit since they are the ones funding the money. They want to make sure that you are able to make the payments and that you are not in any type of financial trouble and are trying to buy yourself a few months without a mortgage payment in order to catch up. Some lenders will set a minimum credit score or will abide by the standard FHA rules of a minimum credit score of 580. This is not across the board, though, so what one lender requires, another may not, so it makes sense to shop with different lenders.
In the end, the FHA Streamline Refinance benefits everyone – you get a lower payment and the lender has a lower risk of default, which automatically puts the FHA in a better situation as well. This is not to say that if you have poor credit that you will be able to get away with it – lenders have a way of knowing what they are getting themselves into. If there is an inkling that you are unable to afford your payments now, the lender will likely inquire about your current financial situation a little more in-depth than they would if you did not seem like you were trying to keep your head above water. Above all, it is important to be open and honest with any lender you apply with to ensure that you get the loan that you are meant to have and that you can afford now and well into the future.