An FHA Streamline Refinance allows the refinance of your existing 1st mortgage. You don’t take any cash out with this program. Instead, you take out only what you owe. In exchange, lenders only require you to provide limited documentation. The streamline refinance process is often quicker than standard refinance loans. Lenders do less underwriting and require less documentation. The average lender takes between 2 and 4 weeks to close on the streamline loan.
What is the FHA Streamline Refinance?
The FHA Streamline Refinance allows you the opportunity to lower your interest rate. If rates were higher when you took out your original loan, you benefit. Borrowers also use the program to refinance out of an adjustable rate loan. This helps borrowers avoid the higher rates when the loan adjusts.
The FHA requires very little documentation for this program. Generally, income and assets documents aren’t required. In addition, the FHA doesn’t require lenders to pull your credit or order an appraisal. Qualifying for the program is much simpler than qualifying for a standard FHA loan.
How do You Qualify for an FHA Streamline?
Usually, the lender requires the following items for the streamline program:
- Proof of a current FHA loan with your current FHA case number
- Proof your current FHA loan is current (you can’t be late on your payments)
- You must show a net tangible benefit, such as a lower interest rate or lower monthly payment
- You can’t have more than 1 late payment in the last 12 months (no more than 30 days late)
These are the FHA’s requirements. Some lenders may have additional requirements. Remember, the lender funds the loan. The FHA just guarantees it. If a lender wants more restrictions, they can add them for their protection.
What’s the FHA Streamline Refinance Process?
The FHA streamline refinance process works much the same way as your original FHA loan:
- Complete a mortgage application
- Provide documents the lender requires (usually your employer’s contact information, proof of timely mortgage payments, and your HUD-1 from your original closing)
- The underwriter evaluates the loan
- You receive an approval either clear to close or approved with conditions
- You clear up any conditions
- The loan goes to closing
Can You Roll Closing Costs Into Your FHA Streamline Loan?
Refinancing your loan usually means paying more closing costs. You can’t roll your closing costs into an FHA streamline loan. It’s not a cash out refinance. However, there is a way around it. You can ask the lender for a no closing cost loan. In exchange for the closing costs, lenders charge you a higher interest rate, though. You can usually do this when interest rates are low. Remember, you must prove you have a net tangible benefit for the loan. There isn’t a specific threshold you must meet, but your payment must be lower.
Again, the exception to the rule is if you refinance from an ARM into a fixed rate loan. Lenders consider the fixed rate loan less risky than an ARM. Because you can’t predict your future payments on your ARM, it poses a risk of default. Fixed rate loans are easier to budget for even when your income changes.
Tips to Speed Up your FHA Streamline Process
Generally, the FHA streamline process is quick. But, there are ways you can help speed it along.
- Provide documents right away. The underwriter will let your loan officer know what they need. As soon as the loan officer contacts you, provide the required documents. This helps avoid any delays.
- Stay at your current job. Even though the streamline loan doesn’t require proof of income, your lender may verify your employment. If you started the job recently, a lender may be wearier of lending you new money. The longer you hold your job, the more stable you look to a lender. Generally, lenders prefer a 2-year job history, but that can vary by lender.
- Keep your credit score high. Lenders aren’t required to pull your credit for the streamline loan, but they might. The higher your score, the better chance you have of securing an approval.
No Appraisal Saves Time
One of the best things about the FHA streamline loan is the lack of need for an appraisal. Most refinances are based on the current value of your home. The FHA streamline loan doesn’t, though. The lender can use the value of your home used when you first took out the FHA loan. This can save you a week or two of loan processing. When a lender requires an appraisal, you must wait for the appraiser to view the home and write up the report. This could take several weeks, slowing the loan process down.
Figuring Out Your FHA Streamline Loan Amount
The FHA streamline loan requires a distinct calculation to determine your loan amount. Because you can’t receive any cash in hand, you can only include the following:
- Outstanding principal balance on your current loan
- Any interest due
- New upfront mortgage insurance due
From this amount, though, you can deduct your FHA MIP refund. This is money you get back if you refinance your FHA loan within 3 years of its origination. The FHA provides a refund proportionate to the time you held the loan. For example, if you had the loan for 2 years, you would receive 34% of your upfront MIP back. The lender then deducts this amount from the new upfront MIP you owe.
If you can lower your interest rate on your FHA loan, use the FHA streamline refinance process. It’s simple, inexpensive, and effective. If you need cash out of your home’s equity, though, you’ll need a fully verified FHA loan. This means the lender must pull your credit, order an appraisal, and verify your income. Look at both options to see which meets your needs the most. The FHA loan offers many benefits that you can enjoy as a first-time or subsequent homeowner.