As long as you currently have an FHA loan, you may be eligible for the FHA streamline loan. This refinance program helps current FHA mortgage holders lower their interest rate, change their term, or even change their loan program.
The benefit of the FHA streamline loan program is the lack of verification you must provide. The FHA allows lenders to rely on your original qualifying factors when you bought the home. The FHA only cares about two factors – your mortgage payment history and your net tangible benefit.
Keep reading to see how these factors can help you qualify for the FHA streamline loan.
Your Mortgage Payment History
Your mortgage payment history is crucial to your ability to secure the FHA streamline loan. The FHA wants to know that you easily made your current FHA payments. In other words, did you make your payments on time? Lenders like to see that you have at least 12 monthly payments made on time. A lender may be able to grant an exception if you have one late payment during that time, but it’s up to lender discretion.
The FHA relies on your mortgage payment history so much because it lets them know that you could comfortably afford what should be a higher payment than the refinanced payment. If you are applying for the streamline loan in order to lower your payment, you shouldn’t have a problem affording the lower payment if you have a timely mortgage payment history.
The Net Tangible Benefit
The next largest requirement from the FHA is that you have a net tangible benefit from the refinance. The FHA wants to know that it’s worth you refinancing. If you won’t save money or benefit from a shorter term/change of mortgage program, refinancing won’t make sense.
The FHA cares about the net tangible benefit because refinancing costs money. It can cost between 3% and 5% of your loan amount. Remember that you already paid closing costs when you bought the home. You are going to pay those costs again if you decide to refinance. It may make sense to do so, but the FHA requires that you prove a net tangible benefit.
The most common net tangible benefits include:
- Lower mortgage payment – The FHA doesn’t specify an amount that your mortgage payment must decrease; they just say that it must be lower
- Shorter term – Any decrease in your term is a net tangible benefit, but the greater the difference, the greater the benefit
- Different program – If you have an ARM loan now and you want to refinance into a fixed rate loan, that’s a net tangible benefit because the ARM loan is riskier than the fixed rate loan
The Lender Overlays
The above requirements are the FHA’s minimum requirements. The lender is the one that actually underwrites and funds the loan, though. The FHA only guarantees the loan, which means they promise to pay the lender back should you default.
Because lenders have the most at stake here, they have the right to add their own requirements. For example, a lender may require that they pull your credit or that they verify your income. If a lender has reason to believe that your loan is riskier than you let on, they may want to verify that you can afford the loan beyond the basic requirements that the FHA requires.
If you stumble across a lender that has a lot of requirements, you may want to shop around with other lenders. There are FHA lenders all throughout the United States. You can choose to use any lender that is licensed to write FHA loans in your state. This gives you plenty of places to shop around and find the deal that’s best for you.
The FHA streamline loan is a great way to take advantage of decreasing interest rates or to get yourself out of an adjustable rate loan. As long as you are sure you benefit from the refinance and you have a timely mortgage payment history, you should be in good shape of getting an FHA streamline refinance.