You need income to qualify for a mortgage. What if your income isn’t very consistent? What if you changed jobs? Are you out of luck refinancing your FHA loan? The good news is you can still refinance. The even better news – you may not need to verify the money you make. The FHA Streamline makes this possible.
What is the FHA Streamline?
The FHA Streamline helps current FHA loan holders to secure a lower rate and/or payment. The program requires very little documentation. It’s a fast program that still provides the FHA guarantee. Aside from your income, you also don’t need to verify your credit score or the value of your home. This means no credit pull and no appraisal. You could even be upside down on your home.
It sounds too good to be true, right? It’s not. But, there are lenders who still require a credit pull. There are even some that want an appraisal or verification of your salary. The key to finding the right lender is to shop around. Every lender has different requirements.
How to Qualify for the FHA Streamline
The qualification process is simple for this program. Without credit, income, or an appraisal, there isn’t much left. What you must provide includes:
- Proof of timely mortgage payments over the last 12 months
- Proof you currently have an FHA loan
- Proof of owner occupancy
- Proof of your homeowner’s insurance
- 2 months of bank statements showing you have money to cover the closing costs
The FHA bases your approval on your mortgage history. The FHA Streamline lowers your interest rate and/or payment. If you have timely payments of your current loan, you should be able to afford the lower payment. But, if you pay any closing costs out of pocket, you will have to verify your assets. If you don’t have the assets, you can negotiate a no-closing cost loan. Keep in mind, though, there must be a benefit to the loan. This means a lower payment or interest rate. When lenders pay the closing costs, they usually charge a slightly higher rate.
No Need for Income Docs
According to the FHA, you don’t need to provide income documentation. But, you may have to verify your employment. At the very least, lenders want to know you are employed. This helps ensure them that you will continue to make your payments. What lenders want to avoid is borrowers trying to prolong default on their loan because they lost their job. Because using your current lender isn’t required, this could be a new lender to you. This means new money and new risk to the lender. They want to make sure you can take care of the loan.
Some lenders do have overlays. This means extra requirements on top of the FHA’s requirements. In some cases, this may mean income verification. If you don’t want to verify your income, you are free to shop around. Not every lender adds the same overlays. Ask beforehand what lenders require so you know which lenders to use and which to avoid.
You Need a Net Tangible Benefit
One of the largest requirements of the FHA Streamline loan is the need for a net tangible benefit. In short, you must save money. The FHA doesn’t stipulate how much money you must save. But, there ae some cases where you won’t save money. Borrowers who currently have an adjustable rate loan are a good example. If they decide to refinance into a fixed rate loan, their rate may be higher. This is especially true if you refinance before your rate adjusts. The initial rate in an ARM is an introductory rate. It can be much lower than fixed rates. But, once the rate adjusts, it has the potential to be much higher.
The net tangible benefit requirement is an FHA rule. You can’t get around it. But it makes sense. There’s no sense in refinancing if there is no benefit. Remember, refinancing costs money. Speaking of costs, let’s look at how you should determine if refinancing is worth it for you.
What’s Your Recapture Period?
Something anyone who wants to refinance should consider is the recapture period. This refers to the fees you pay to refinance. Closing fees accompany most loans unless you negotiate a no-closing-cost loan with a lender. You still pay the fees, just in the interest rate rather than as a separate fee.
Your recapture period is the time it takes to make up the closing fees. You determine it based on the savings you reap each month. Let’s say you save $100 a month with a lower mortgage payment. Now your closing costs equal $3,000. Your recapture period would be 30 months or $3,000/$100. It would take you 30 months to pay back the closing costs and start saving. You can then determine if this is an allowable amount of time for you. Maybe you will move within that time or you think that is too long to wait for the savings. It is up to you.
The bottom line is you don’t need income docs for an FHA Streamline loan in most cases. Again, it depends on the lender. It’s not a bad thing to need the verification, though. Lenders that do require it just want to make sure you can afford the loan. This prevents you from getting in over your head. This isn’t a bad thing. But, since the FHA Streamline reduces your payment, chances are you won’t get in over your head. The biggest thing to watch is the closing fees. This is where shopping around really matters. Find a lender with the lowest closing costs along with the best rate to maximize your savings. Make sure you compare apples to apples, though. Comparing a loan with no closing costs to one with closing costs won’t work. Ask for the same comparison from each lender to see which offer suits you the best.