If you have a current FHA loan, you may be eligible for the FHA streamline refinance. This simplified refinance program gives you access to lower interest rates, lower payments, or better terms with very few requirements.
How do you know if you qualify? Keep reading to learn what the FHA looks for in an applicant.
Mortgage Payment History
The largest factor regarding your eligibility for the FHA streamline refinance is your mortgage payment history. This is how the lender and/or the FHA determine if you are a good risk. They look for a perfect mortgage payment history over the last 12 months. In other words, you didn’t make any late payments. This tells the lender that you can comfortably afford the higher mortgage payment. If the new mortgage payment is lower, it should be even easier to afford.
The Net Tangible Benefit
The next most important qualifying factor is your net tangible benefit. In other words, does it make sense to refinance? The FHA requires this because refinancing costs money. It also resets your term in some cases. If there isn’t a benefit, such as a lower interest rate, lower payment, or better term, you won’t qualify for the FHA streamline refinance.
The FHA doesn’t have a set amount your payment or interest rate must decrease in order to qualify for the program, though. The lender has final discretion regarding whether your net tangible benefit is enough to make a difference.
Time Since Your Origination Date
The origination date of your current FHA loan also plays a role in your eligibility for the FHA streamline refinance. The FHA requires that you make at least 6 payments on your current FHA loan before refinancing. The number of actual payments you make will determine what the FHA requires as far as timely payments. Here’s how that works:
- If you made 6 payments, each payment must have been on time. You cannot have any late payments and still qualify.
- If you made between 6 and 12 payments, each payment must have been on time. Again, you cannot have any late payments.
- If you made 12 payments or more, the lender may allow up to one 30-day late payment. This is based on lender discretion though.
Proof of Your Employment
Technically, FHA lenders don’t have to verify your income for the FHA streamline refinance. You can refinance even if you have a different job or different income. Most lenders, though, will determine if you are working. In other words, they will want contact information for your employer to verify your employment dates.
It’s best if you are at the same job that you had when you took out the FHA loan. If the lender can tell you are at a new job, based on the dates of employment, they may require further documentation. For example, they may want to see your paystubs or even W-2s to make sure you can still comfortably afford a loan. This is often the case if you refinance into a shorter term or out of an ARM and into a fixed-rate loan. If the payment increases, the lender needs to know you can comfortably afford it.
Proof of Your Assets
You will need to prove that you have assets if you pay the closing costs yourself at the closing. The lender must verify that you have enough liquid assets of your own to cover the costs. Typically, the lender will need to see 2 months’ worth of bank statements to prove that the funds are yours and not money from a loan or another person.
If these simple factors all line up, the FHA streamline refinance should be a good option for you. Of course, every lender has their own requirements. The lenders fund the loans, not the FHA, so they have the final say in any additional requirements. If you come across a lender that has strict additional requirements, shop around with other FHA lenders. You may find that there are other lenders with less stringent requirements that enable you to refinance with very little verification required.