The FHA streamline refinance makes it easy for current FHA loan holders to refinance their loan. All you have to do is provide proof that you can make your current mortgage payments on time and that you benefit from the refinance. If you pass these two tests, you can usually refinance your FHA loan with little documentation.
Before you jump headfirst at the first opportunity to lower your interest rate, though, you should know that you have to wait at least 6 months. Lenders must make sure that you’ve made at least 6 payments on your mortgage and that at least 210 days have passed since your closing.
Why is There a Waiting Period?
The waiting period gives lenders a chance to see how you handle your current FHA loan. There’s no reason to let you refinance your loan if you can’t make your current payments. In other words, if you stand to be a default risk, lenders don’t want to expend the resources to provide you with yet another loan.
The waiting period also gives you time to decide if refinancing is the right choice. When you closed on your purchase loan, you likely paid closing costs. You are going to pay those costs again if you refinance. Is it worth it? Will you save enough to actually make the refinance make sense?
Why Would You Refinance so Soon?
Some borrowers like to have the lowest possible interest rate on their loan. They may have taken a higher rate because rates were high at the time they had to l ock their interest rate. Sometimes borrowers have a higher interest rate because they didn’t have the best credit or debt ratio at the time that they closed on the loan.
If you’ve had time to straighten your finances out, increase your credit score, and lower your debt ratio, you may stand to get a lower interest rate now. Even if rates didn’t drop a ton, you may qualify for a lower rate because you fixed your financial situation.
If you plan to keep your home for the next 30 years, a lower interest rate could make a big difference in how much you pay for the home. Even if lowering your payment $50 doesn’t sound like a lot, look at the big picture. After one year with the lower rate, you’ll save $600. If you carry that out over 30 years, you’ll save $18,000. That’s $18,000 in interest that you would pay. If you save that money, you could likely invest it elsewhere and make a better return.
Qualifying for the FHA Streamline Refinance
Just as we discussed above, all you need is a timely mortgage payment history and benefit to the refinance. Some lenders may require a little more, though. Because lenders underwrite and fund the loans, they can add as many stipulations as they want to the requirements.
For example, some lenders will pull your credit and require a specific credit score. Other lenders will require a specific debt ratio or will require that they verify your income to make sure you can afford the new payments.
Because FHA lenders can set their own requirements beyond what the FHA requires, it pays to shop around. See what other lenders offer on the FHA streamline refinance. If you use your current lender, you may not have to face any additional requirements, but you may not get the lowest interest rate either. That lender already has your business, so they don’t have to try to entice you. Other lenders that are vying for your business may offer a lower interest rate just to get you in the door.
Take your time and make sure refinancing makes sense. If it does, shop around to find a lender that will give you the best deal so that you can make refinancing well worth the time and money.