The FHA Streamline loan allows current FHA borrowers to refinance their loan with very little verification. However, what happens if you need to add or remove borrowers from the loan? Can you still use the FHA Streamline loan? We look at the process below.
What is the FHA Streamline?
First, let’s start with how the FHA Streamline loan works. Normally, you don’t have to verify your income, assets, house value, or credit score with this program. Lenders look at your housing payment history to determine if you qualify. If you made your last 12 months’ of payments on time, you likely qualify.
The FHA does not require lenders to look at your credit score or even your income. In fact, they don’t even have to order an appraisal on your home. You can be upside down (owe more than the home’s value) and still qualify. You can also have a different job/income or have a lower credit score and still qualify.
The FHA doesn’t think of the Streamline program as risky. You are not taking additional money out of the home. You simply refinance what you already owe at a lower rate. In return, you get a lower mortgage payment. If you could make the previous higher payments, then your chance of default on the lower payments is low.
How to Add a Borrower
You can add a borrower with an FHA Streamline loan with very little issue. Again, because you are not tapping into the home’s equity, the FHA doesn’t care who you add. All adding a borrower does to the loan is give the lender someone else to come after in the face of default.
Lenders do not have to verify any of the new borrower’s information, including their income, assets, or credit score. As long as you stay on the loan and you are the one that makes the payments, you can add a borrower to the loan. The most common reason for an additional borrower is a new marriage. However, you can add a borrower for almost any reason without too much explanation.
How to Remove a Borrower
If you wish to remove a borrower, you may have a little more work ahead of you. Not all lenders will allow it. Your best chance occurs when you wait at least 6 months after the occurrence that causes you to take someone off the loan.
For example, let’s say you went through a divorce and your ex-spouse no longer owns the home. You could refinance and ask for his removal; however, the streamline process won’t apply. The lender will need to verify that you can make the payments on your own. When you qualified for the loan, you likely had to verify the income of both you and your spouse. The lender gave you the loan on the assumption that there were two incomes. If you lose one source of income, you must prove you can afford the payments on your own.
Lenders need to see at least 6 months of payments made on your own. As soon as you start handling the payments, keep your canceled checks. This is the easiest way to prove to the lender that you made the payments on your own. Make the payments from an account that is yours alone and keep all proof of the payments.
If you refinance before the 6-month mark, you may have to re-qualify for the loan. The lender may not go as far as requiring an appraisal. However, they will likely ask to verify your income, assets, and credit score. This could take away from the benefit of the streamline program.
If you want to add or remove borrowers with the FHA Streamline, make sure you do your homework. Adding a borrower usually doesn’t require you to do much of anything different than any other borrower. However, because lenders can make their own rules, they may require verification from the new borrower. They may want to make sure it’s someone that can handle the loan should you become unable. If you don’t want to verify the additional person’s information, shop around to find a lender that won’t require this.
Removing a borrower does take more work. There’s no getting around the FHA’s rules. Lenders could make those rules even stricter, though. Waiting six months is the best way to avoid any type of hassle. If you can’t wait that long, be prepared to verify your income, assets, and credit score to prove that you can afford the loan on your own.