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If your current mortgage loan is insured by the Federal Housing Administration (FHA), you may be eligible for the FHA streamline refinance option.
Refinancing allows you to switch out your existing mortgage loan for a new one with more favorable terms. This generally includes lowering your monthly payments or shortening your repayment period.
Learn more about what an FHA streamline refinance is, the requirements, and how you can find the right loan officer to guide you through the process.
What is an FHA Streamline Refinance?
When you have an existing FHA loan, you have many refinance options.
If there’s enough equity in the home, some borrowers decide to refinance to a conventional loan so they can take cash out or stop paying mortgage insurance premiums (MIP).
Others may just be looking to take advantage of lower interest rates to lower their monthly payments.
For the latter, an FHA streamline is a quicker, simpler refinance process that allows borrowers to reduce their monthly payments and potentially skip an appraisal.
The basic requirements of an FHA streamline include:
- You must have an existing FHA-insured mortgage loan
- The mortgage must be current, and not delinquent
- The refinance is a “net tangible benefit” to the borrower — this means that based on the FHA guidelines, the new rates and terms must benefit you
- You cannot take out more than $500
For those seeking a faster, more straightforward process, an FHA streamline refinance may be the perfect option for you. But first, let’s weigh the pros and cons to determine whether this type of refinance fits your current and future goals.
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Pros and Cons of an FHA Streamline Refinance
All refinance options have benefits and drawbacks, and these are all dependent on your personal goals and needs. The perfect option for one borrower often is not the best choice for another.
Benefits of an FHA Streamline
That being said, an FHA streamline option may be beneficial to you for the following reasons:
- You usually don’t have to get an appraisal. This can save you time and money when refinancing.
- There is less paperwork required. Streamline loans are efficient, so your mortgage lender usually will only need to see your recent bank statements, bills, and mortgage statements, and verify your employment.
- You may qualify for a partial refund of your previous MIP.
There are two types of an FHA streamline: credit qualifying and non-credit qualifying. The type you choose determines additional qualifications such as your credit score and debt-to-income ratio*. Your mortgage lender will guide you through these options.
*Debt-To-Income (DTI) ratio is monthly debt/expenses divided by gross monthly income.
Drawbacks of an FHA Streamline
If you are looking to get an FHA streamline loan, the speed and efficiency usually are worth the cons.
However, keep the following drawbacks in mind as you weigh whether this type of loan is right for you:
- You still have to pay MIP. Since you currently have an FHA loan, you already are paying MIP. If you refinance to an FHA streamline, this will continue. The only way to get rid of MIP is to reach 20% equity in your home and refinance to a conventional loan.
- You still have to pay closing costs. Work closely with your mortgage lender to determine these costs and whether the savings you acquire from refinancing balances them out.
Keep in mind that with an FHA streamline, your only options are to lower your monthly payment by adjusting your rate and terms. If you are looking to take cash out, you will have to refinance using another option.
FHA Streamline Refinance Requirements
Beyond the basic guidelines that require a borrower to have an existing FHA loan and meet the net tangible benefits requirements, there are some additional guidelines regarding the length of your loan and on-time payments.
Has Enough Time Passed?
Before you are able to get a streamline refinance, you need to have made at least six payments, and at least six full months need to have passed since the first mortgage payment was due.
Also, at least 210 days must have passed from the closing date of your current mortgage.
Have You Missed Any Payments?
To prove you are in good standing on your current mortgage, you must have no payments that were more than 30 days late in the past six months.
In the past 12 months, you cannot have more than one payment that’s more than 30 days late.
While these requirements may seem complicated, you should have no issues as long as you have made your payments on time and your lender determines that a streamline refinance will be beneficial to you.
Ready to Refinance?
Refinancing to an FHA streamline is simple with the right mortgage loan officer.
Although you need to currently have an FHA loan, you don’t need to refinance with the same lender you used previously.
The loan officers at Homefinity will gather your information and quickly determine whether an FHA streamline refinance is right for you. If you meet the requirements, you can move forward with the level of support you desire.
Get started with one of our loan officers today.
With the professionals at Homefinity, you can expect an honest, respectful, efficient experience. We look forward to helping you get a new loan that better suits your lifestyle and meets your goals.
Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA, and were not approved by a government agency.