If you have a current FHA loan, you may be eligible for the FHA Streamline Loan. This gives you the chance to refinance your loan in order to obtain a lower interest rate or better term. The requirements may vary by lender, but the FHA’s guidelines are rather simple, enabling many FHA borrowers to get approved to refinance their loan.
The entire process is very ‘streamlined’ and does not take long. Exactly how long it takes depends on the lender and their policies. For example, some lenders will have more requirements than the FHA. They may require that they verify your employment or run a quick automated value on your home. The more requirements a lender has, the longer the process takes.
As a general rule, it takes between one and two weeks to get approved for the FHA Streamline loan. Below we’ll discuss what the FHA and some lenders require.
Completing the Application
The first step, no matter which lender you use, is to fill out the loan application. Just like you did for your initial loan, you’ll need to state your personal identifying information, income, assets, and liabilities. It’s important to be truthful on the application. Most of the items on there don’t have to be verified according to the FHA. However, some lenders may require it.
Providing the Documents
The next step is providing the lender with the required documents. The FHA does not require income or asset documents. They also don’t require that the lender pull your credit score. Basically, all you need to provide is proof that you make your housing payments on time. You can do this with a mortgage statement and your FHA loan number. The lender can then verify your housing payment on their own.
Some lenders may require information about your employer. They may not verify your income, but they’ll call your employer and make sure you still work there. However, a few lenders may verify your income as a guarantee that you can make the new payments.
The quicker you provide the documents the lender needs, the faster the process moves. Because there is not a lot to underwrite, lenders don’t get hung up on income or asset documents during this process.
Proving the Net Tangible Benefit
Perhaps the largest thing that could hold back your approval on the FHA Streamline loan is the proof of your net tangible benefit. This is something that shows it benefits you to refinance your loan. Since you u are essentially resetting your mortgage, the FHA wants to make sure there is ample reason.
For example, let’s say you currently pay 4.5% on your FHA loan, but today you can get a 3.875% rate. This will result in a lower payment. That’s a net tangible benefit. It’s also the most common net tangible benefit. If you already proved you can make your payments on time with a timely payment history, a lower payment will be even easier to afford.
A lower interest rate isn’t the only net tangible benefit, though. You can also have any of the following benefits:
- The new loan has a lower term
- The new loan is a fixed rate loan and your current loan is adjustable
Either of these situations could make your payment increase. Generally, lenders like to see a decreasing payment. However, because a shorter term is less risky for lenders, it’s considered a benefit. You’ll own the home faster, which frees up the bank’s money to lend to someone else.
The same case rings true for the ARM to fixed rate refinance. Your payment may increase, but a fixed rate loan is less risky than an adjustable rate. You always know the amount of your fixed rate payment. An adjustable rate could leave you with a different (and higher) payment every year. This is unpredictable and often risky for borrowers and lenders alike.
The key to approval for any type of FHA Streamline loan where your payment may increase is keeping the increase to a minimum. Most lenders allow you to refinance if the payment increases less than 20%. Any increase higher than that and they may require you to verify your income and go through the entire full verification process of a standard loan.
You are in control of how long the FHA Streamline Loan takes, to a point. The quicker you respond to a lender and the more documents you provide up front, the quicker you’ll get an approval. Of course, the time differs by lender as well. When you shop around, ask lenders about their turnaround time. You are not required to use your current FHA lender; you can use any lender that gives you the best deal on your loan.