Buying a house is a big step. For many, that first home is the realization of a dream. It requires much thought primarily because it involves a lot of money. If you need financing to afford a home, that means making a long-term commitment to pay off the sum you borrowed. For most loan types, that’s a good 30 years down the road. Fortunately, some loan programs administered by federal agencies account for positive changes in a borrower’s financial status. In this article, we’ll be putting the spotlight on the FHA Streamline Refinance Loan. This special mortgage product enables a homeowner to refinance an existing FHA mortgage in accordance to today’s rates.
An FHA Streamline Refinance Loan offers some key advantages:
- It does not require a home appraisal. The FHA lets you use the original purchase price as the home’s current value.
- It does not require employment, income, and credit score verification.
At this point, you may be thinking that qualifying for this kind of loan product is easy. However, you should also consider if this is indeed the perfect option for you. Here are some questions to guide you.
Do I have an existing FHA home loan?
Only borrowers with an existing FHA mortgage are eligible for this type of refinancing. If your loan is administered by another government agency, you’ll have to consider other options.
Why do I need to refinance?
If you intend to apply for a Streamline Refinance Loan, you’ll need a legitimate reason for doing so. On the application form, you need to demonstrate that there’s a Net Tangible Benefit in the refinance.
The Net Tangible Benefit is an action that reduces the combined rate (rate quote + monthly insurance premium) by at least half of one percent. For example, Mrs. Field took out a loan in July 2013 with a rate of 4% and and MIP of 1.35%. The combined rate would then be 5.35%. She applied for refinancing and received a rate quote at 3.75 percent with an MIP of .85 percent. The combined rate, 4.60%, is three quarters lower than the combined rate on her existing FHA loan. In this scenario, she is able to reap the Net Tangible Benefit for the reduced combined rate.
Am I paying my monthly premiums on time?
A homeowner who intends to avail of the FHA Streamline Refinance Loan should have a perfect payment history stretching back to at least three months.
Your answers should give you some insight on whether or not an FHA Streamline Refinance Loan is the right product for you.