The FHA Streamline Refinance is a mortgage product designed to help homeowners who already have an FHA home loan, which means that it is not available to those who may have a conventional Fannie Mae or Freddie Mac mortgage. It was designed to provide a fast and simple way to refinance on your home loan and still take advantage of the FHA benefits.
Over the years this has become an extremely popular option for a number of reasons and it has been able to help homeowners even when they are underwater on their mortgage. While this mortgage product resembles many other options, there are a few features that make it really stand out.
FHA Streamline Refinance Benefits
One of the most important features of the FHA Streamline refinance program is that there is no appraisal necessary. This is why the program seems to encourage those mortgages that are underwater. The FHA simply allows you to use your original purchase price as the value of the home, regardless of what it is actually worth today.
The FHA has also removed a number of the elements that can make refinancing difficult for some homeowners. Back in April of 2011, the FHA got rid of verification requirements for almost everything.
Don’t look at this like some kind of catch-all, freebie, though. There is a method to this because FHA home loans are not actually provided by the FHA. They simply guarantee the money you get from another lender. If they can help you lower your monthly payments, you will be less likely to default on your payments. In which case, everybody benefits.
Even though the FHA removed all those verifications, there are still a number of qualifiers that will determine whether or not you are eligible. First of all, the refinance must have some kind of purpose. There must be a “Net Tangible Benefit” in taking this action – i.e. you are looking to lower your mortgage payment by a certain amount. You cannot simply refinance to take some money out to pay other bills.
You must also show that you have a perfect 12-month payment history. The FHA wants to avoid people defaulting on their loans, so any late payments in the last year can cause problems. You also can’t start refinancing until you’ve made 6 mortgage payments on the FHA-insured loan and 210 days have passed since the most recent closing date.
Understanding the Requirements
When you opt for the streamline refinance, you will be required to make two types of mortgage insurance payments. One of them is an upfront payment at closing, and an annual payment made every month. The amount you pay will depend on the time you received your FHA-backed mortgage. Basically, if your FHA mortgage was endorsed on or after June 1, 2009, you will have to pay mortgage insurance premiums on your refinance that are the same for all other FHA applicants. If you received your loan before that time, you can be “grandfathered” in at a lower rate.
There are a lot of things to consider when you are looking at your options for refinancing. Be sure you understand all the ins and outs before you make your final decision, and consult with a professional to take advantage of all the benefits.