Refinancing without any verification of your credit, income, or the value of your home is possible with the FHA Streamline Refinance. All the FHA requires is a net tangible benefit for the refinance. What about an inspection, though? Does the FHA require it for the streamline refinance?
Luckily, the answer is ‘no.’ The FHA does not require an inspection or an appraisal for the streamline process.
Why you Don’t Need an Inspection
If you remember when you bought your home with the FHA loan, the FHA does not require an inspection. They only require an appraisal. If you want further detail of the condition of the home, you are encouraged to pay for one. However, it is not required.
The FHA does not require the inspection because the appraisal does a good job of determining the home’s condition. The FHA has specific requirements the appraiser must look for. If the home does not meet those requirements, it will not pass the appraisal. In other words, the FHA will not insure a loan on the home until the seller fixes the issues.
As far as an FHA streamline loan, the FHA does not require borrowers to conduct any repairs, even those noted on the appraisal form, if you get an appraisal. There are certain situations when lenders and/or borrowers prefer an appraisal. The FHA does not make borrowers fix any issues with the exception of any lead paint. Because lead paint can cause a hazard to the household members, it must be fixed before you can close on the loan.
The FHA Already Guarantees a Loan
Another reason the FHA does not require an inspection for the streamline program is that they already insure a mortgage on the home. If they don’t allow you to refinance the home through the streamline program, they still insure your current loan. This puts the FHA in the same position if they allow you to refinance or not.
In fact, if they allow you to refinance, the FHA is in a better position. Most borrowers use the streamline program to lower their payment. They do so with a lower interest rate. If you refinance into a shorter term, you won’t’ have a lower payment, but it’s still less risk for the FHA. Whether you have a lower payment or you borrow money for a shorter amount of time, the FHA has less risk of default. You are more likely to make smaller payments on time. You are also less likely to default on a shorter-term loan.
Should You Pay for an Inspection?
Now comes the question, should you pay for an inspection during a refinance? The answer is truly a personal one. Did you have the home inspected when you purchased it? If so, you know the major issues that are wrong with the home, already, if there are any. If you fixed the issues and took good care of the home, you probably don’t need another report on its condition. Since you already own the home, you should probably save your money and use it for other things.
Home inspections can cost several hundred dollars. You could use that money for other closing costs on the streamline loan. The fewer closing costs you wrap into your loan, the lower your payment. Refinancing doesn’t come free, but wrapping the costs into your loan only increases your payment and cost you more in interest.
The bottom line is that you don’t need a home inspection for an FHA streamline refinance. If you want one, you are more than able to pay for it. If you took good care of your home, though, and are not selling it any time soon, it’s best to save your money for other costs.