The FHA streamline loan is for current FHA borrowers. It’s a great way to lower your payment or change your loan’s term. The program requires very little verification because the FHA allows lenders to use the original qualifying information from the original FHA loan.
Who does this loan program benefit though? Keep reading to find out.
Borrowers With Lower Credit Scores
Is your credit score lower today than it was when you bought your home with FHA financing? Maybe you would love to refinance but know that a lender wouldn’t approve you for a loan the way your credit is today. The FHA streamline refinance doesn’t require lenders to pull your credit. This means your credit score could be much lower and the lender wouldn’t know. The FHA doesn’t have a minimum credit score requirement or even a credit history requirement you must meet in order to refinance with the streamline program.
Be careful though, as each lender has their own additional requirements. They call them lender overlays. This means the lender can make more requirements on top of what the FHA requires. In some cases, this may mean that the lender will pull your credit. Don’t worry, though, if you find a lender that does pull credit, just keep shopping around until you find another lender that doesn’t.
Borrowers Whose Home Value Fell
Another major advantage of the FHA streamline program is the lack of need for an appraisal. The FHA allows lenders to use the original value of the home when you bought it for refinancing purposes. This has helped thousands of homeowners that lost value in their homes due to the housing crisis. These homeowners that would otherwise have been stuck upside down on their mortgages were able to at least get a lower interest rate on their loans, helping them to get out from underwater while paying less interest to do so.
If your home’s value fell, you can still refinance. Because the FHA only allows borrowers to refinance the amount of their outstanding loan’s principal plus the funding fee and applicable closing costs, there’s no reason to worry about the home’s value. The FHA requires that borrowers prove that they could make their original mortgage payments on time for the last 12 months. That’s all the proof lenders need to determine that refinancing is a good idea even if their home value fell.
Borrowers That Want to Get Out of an ARM
The adjustable rate mortgage may have seemed like a good idea when you bought the home. It gave you a low interest rate, which made it easier to qualify for the loan. Now that the rate is adjusting though, you are probably rethinking your decision.
Refinancing with the FHA streamline program is a great way to get out of that ARM. You’ll have minimal closing costs and very few requirements you must meet. As long as you paid your mortgage on time for the last 12 months and you can show that there’s a benefit to refinancing (getting out of an ARM is a benefit), you may be eligible. It’s best if you refinance into a fixed rate loan so that you have the predictability of your payment moving forward.
Borrowers That Want a Lower Interest Rate
In reality, any FHA borrower that stands to save money by refinancing can benefit from the FHA streamline program. Because there is very little work involved, the closing costs are low. Plus, you may be eligible for a refund of the upfront MIP you paid on your original loan. If you took out your original FHA loan within the last 3 years, you’ll receive a prorated refund for the MIP that you paid. The lender will then apply that refund towards the MIP you owe on the new FHA refinance.
If you want a rate/term refinance that helps you save money every month and you know you’ll stay in the home long enough to make the refinance worth it, the FHA streamline program is a great option. If you want to know if the refinance is worth it, use the following formula:
Total closing costs/Monthly savings on new loan = Months to break-even
If you know you’ll be in the home for more months than it takes to break even, then the refinance may be worth it for you.
The FHA streamline program benefits a large number of borrowers. If you have an FHA loan, have made your payments on time, and benefit from a rate/term refinance, it may be a good option for you. Even if your credit decreased, your home value fell, or even if you changed jobs, you may be eligible for this great program.