The FHA Streamline Refinance does away with the usual voluminous documentation accompanying any refinancing transaction. And this streamline refinance program comes in two options: credit and non-credit qualifying. Let’s find out about their differences and similarities, and their overall implication to you should you choose either option.
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Credit and Non-Credit Qualifying Guidelines
This option does not require a credit check, a capacity analysis, and an appraisal.
Under this option, the lender is required to perform a credit check and capacity analysis on you. But you are not required to obtain an appraisal.
You are required to make all mortgage payments within six months prior to the FHA case number assignment. Within that six-month period, only one 30-day late payment is allowed. Moreover, you should have made a timely payment on the month before the refinance mortgage’s disbursement date.
You are required to timely make all mortgage payments if your mortgage has less than six months of payment history. If your mortgage’s payment history exceeds six months, you must have made all six mortgage payments before the FHA case number assignment. The FHA’s standard mortgage seasoning requirements will apply.
To qualify for a non-credit qualifying, all borrowers on the existing mortgage must remain as borrowers on the new mortgage. For mortgages that were assumed, they can still be eligible if the previous borrower has been released from any financial liability.
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An abbreviated Uniform Residential Loan Application (URLA) may be used by the lender for non-credit qualifying refinances only. For credit-qualifying refinances, a full URLA must be utilized.
This option requires at least one borrower on the existing mortgage to remain as a borrower on the new mortgage. The refinance must also meet all requirements of manual underwriting, expect to what pertains to appraisals and LTV calculations.
Under manual underwriting, your credit, debts and liabilities for DTI, and income will be evaluated. The lenders will look into, among other things, your credit report, URLA, Form W-2, pay stubs, individual and business tax returns and statements of profit and loss if self-employed. They will also check if the sources of your funds for closing costs, earnest money deposit and points are acceptable.
The non-credit qualifying refinance can be an option for those who don’t want to produce the documentation needed for a manually underwritten loan. But because little information is provided (thus more risk to the lender), a higher rate may be imposed on.
Meanwhile, the credit qualifying refinance requires a lot of paperwork with some listed above but because income is factored into the loan terms, the rates are competitively lower.
Whichever option is beneficial to you can be determined by the net tangible benefit test required by all FHA streamline refinance credit and non-credit qualifying options.