Lowering your rate on an FHA loan is simple with the FHA Streamline Refinance. With little verification, you can have a lower payment. But, what if you want to do it twice? Maybe rates dropped again after your initial refinance. Can you use the program more than one time?
Luckily, the answer is ‘yes.’ You can use it multiple times. You just have to follow the FHA rules that pertain to you even if it is your first time refinancing on the program.
The Waiting Period
Whether it’s your first streamline refinance or a subsequent one, you must make at least six payments on your current FHA loan. In addition, these six payments must be on time. This gives the FHA the understanding that you can afford your current loan.
The Streamline Refinance does not require you to provide any verification regarding your income, assets, or the value of your home. The FHA/lender relies strictly on your mortgage payment history. There’s one requirement, though. If it’s only been 6 months since your last refinance, you can’t have any late payments within the last 6 months. Every payment must be on time.
If you have late payments, you must have 12 on-time payments after your last late payment. This could prolong the waiting period if you want to use the streamline refinance more than once.
The Requirements for the FHA Streamline
The requirements for the FHA Streamline remain the same no matter how many times you use it. If this is your second time, you’ll follow the same rules you did the first time around.
In other words:
- You don’t need an appraisal. The lender can use the original appraisal from when you purchased the home. The lender/FHA won’t know if the value fell. You could even be underwater (owe more than your home is worth) and still refinance.
- You don’t need income documents. You could change changes or make less money than you originally did with your first mortgage and still qualify. Your lender ‘may’ ask for a verbal Verification of Employment, though. This just confirms that you do have a job. They don’t usually verify your income, though.
- You don’t need asset documents. The only assets you would have to verify are those used to pay any closing costs. You may have the option to wrap the closing costs into your loan, though. You may also have the option to ask for a no-closing-cost loan. In other words, the lender pays the closing costs for you. In exchange, you take a higher interest rate.
The main concern the FHA/lender has with the FHA Streamline is that you have a net tangible benefit. In other words, you save money. The general consensus is you must save 5% on your payment. If your current payment is $1,000, you could only use the program if your new payment is $950 or less.
This could happen in several ways. The most obvious is if you obtain a lower interest rate. That’s the main idea of the Streamline Refinance. However, you can use it in a few other cases:
- Refinance from an ARM to a fixed rate – An ARM that adjusts could drastically increase your payment. Even though your fixed loan interest rate may be higher than the ARM, it’s less risky. Lenders take into consideration the savings you’ll reap moving forward.
- Refinance into a lower term – If you have a 30-year loan but want to refinance into a 15-year, you’ll have a higher payment. You’ll likely have a lower interest rate, though. Lenders don’t use the 5% rule because the lower term is less risky for them.
Why You Would Want to Use the FHA Streamline Twice
The bigger question here is why would you want to use the FHA Streamline refinance twice? There are a few reasons:
- Drastically dropping rates – If rates dropped enough that you’ll save another 5%, you may benefit. You’ll have to figure in your closing costs to see if it’s worth it. Calculate your savings and how many months it would take to make up your closing costs. Then you can determine if it’s worth it to refinance again.
- Decreasing the term – If you can afford a higher payment and know you want to pay your loan off sooner, decreasing the term makes sense. It makes even more sense if you can have the lender pay the closing costs for you. It depends on the rates offered to you. Again, you’ll have to figure out the savings and if it’s worth it.
It’s a personal decision whether or not to use the Streamline Refinance twice. It comes down to figuring out the cost of the loan and how much you’ll actually save. You should look at the big picture. Don’t look at your monthly savings, but how much the loan costs over its entire life. Will you stay in the home forever? Or is this a short-term arrangement for you? These factors play a role in your decision on whether to use the FHA Streamline Refinance twice.