If you have an FHA loan, you may be eligible for the FHA Streamline. This refinance allows you to refinance with very little verification. It also costs you very little. The closing costs aren’t nearly what they are on a regular refinance.
You might wonder why the streamline loan would be any cheaper. You still refinance your loan, right? Here we provide you with the top 5 reasons the streamline loan will save you money on your refinance costs.
You Don’t Need an Appraisal
The FHA Streamline loan uses the original value of your home for underwriting. This means you don’t need to pay for an appraisal. That right there can save you $400-$500.
Keep in mind, though, without the appraisal, you can only refinance your current principal balance. Let’s say you took out a loan for $150,000. But today, your current balance is $140,000. You can only refinance the $140,000 plus the new funding fee and interest due.
This is how the FHA gets away with not requiring an appraisal. They are not lending you any more money than they originally lent you. It is just a restructuring of your current loan to make it more affordable.
The Lender Doesn’t Have to Pull Your Credit
Another closing cost you can avoid is the credit report fee. It’s not a huge fee, but every little bit counts. Lenders are not required to pull your credit. Instead, the FHA requires them to verify your mortgage payment history. They can easily do that with your current lender. They don’t have to pull your credit to see it.
Once the lender verifies that you made your last 12 mortgage payments on time, they don’t have to worry about your credit score.
The Lender Does Less Work on the FHA Streamline
The name FHA Streamline fits the loan well. Lenders don’t have to do nearly as much work as they did with your original FHA loan. Basically, they have to confirm that you make your mortgage payments on time. They also have to confirm that you are not increasing your current loan amount.
They don’t have to review an appraisal or go over your credit with a fine toothed comb. They don’t even have to figure out your debt ratio. You are not required to provide your income documents for this loan. Basically, the lender must make sure you can afford your current mortgage payments. This makes the FHA assume that you can afford lower payments then.
Because of the less work involved, lenders often charge less. This doesn’t mean they won’t charge an origination fee or processing fee. They still might. It just might be less than what you paid on your original loan.
You Can Shop Around
Lenders know how easy it is to get an FHA Streamline loan. Because of the little verification required, you can go almost anywhere. This gives you a chance to comparison shop. Lenders aren’t going to want to lose your business over a few hundred dollars.
Instead, they will lower their closing costs to get your business. Once they have your loan, they make the money on the interest you pay on the loan. Plus, you might bring them more business with other types of loans.
Make sure you tell lenders that you plan to shop around. This may help them decide to lower your costs for you. This could save you money and the unnecessary work of shopping around.
You Can Ask the Lender to Pay Your Refinance Costs
Finally, you can ask your lender to cover your closing costs. We only recommend this if you have room in your interest rate, though. Most lenders charge 0.5% or more on your interest rate in exchange for no closing costs. This is how the lender makes up what they would have made up front.
If you have the room in your loan, though, it may make sense. You’ll have to see how much it will affect your payment. One of the largest requirements of the FHA Streamline loan is that you save money every month. If the rate increases too much, you won’t save any money and won’t get approved.
If you are fortunate enough to get a no-closing-cost-loan, though, you stand to save quite a bit of money up front.
The FHA Streamline loan should cost you less than your current FHA loan. This is especially true if you use the same lender. Then they have to do even less work.
Of course, we recommend that you shop around. Find the best deal and the best terms. Then take advantage of the benefits of the streamline program that the FHA offers.