FHA-Streamline Refinance Guidelines

FHA-Streamline Refinance Guidelines-Everything You Need to Know-this post has been updated 06-22-23

Looking to refinance your home? The FHA Streamline Refinance program might be the perfect solution for you. If you have a desire for a complete overhaul of your mortgage, you have some options.  We are giving you those options below.

What exactly is the FHA Streamline Refinance program, and how does it work? In this comprehensive guide, we’ll walk you through some of the most important guidelines you need to know. From eligibility requirements and the benefits of the program to the application process and potential savings, we’ll cover it all.

So, if you’re ready to save money and simplify your mortgage, keep reading to discover how the FHA Streamline Refinance program can help you achieve your financial goals.

What is an FHA Streamline Refinance?

The FHA Streamline Refinance program is a special mortgage refinance option available to homeowners who already have an FHA (Federal Housing Administration) insured loan.

It is designed to simplify the refinancing process by reducing paperwork and requirements, making it easier and more affordable for homeowners to refinance their existing mortgage.

The FHA Streamline Refinance- must provide a tangible net benefit to the homeowner:

1. Secure a lower interest rate and/or

2. Reduce their monthly mortgage payments

3. Switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage would be considered a benefit

4. Lower the term of the loan **This means the reduction to the remaining amortization of the current mortgage balance plus closing cost. This does not mean refinance from a 30 yr to a 15 yr term.  This could apply only if you are making a principal reduction at closing, or have paid down your current loan term to amortize to a lower term of  20, 15, etc. years remaining.

This program does not allow cash-out to you the borrower. The only funds included in this refinance are the remaining balance of the present loan plus the closing cost for the loan and the Upfront MIP is added to the balance( if applicable). The cash to the borrower must not exceed $500.

Example:

Balance of mortgage + closing cost = the base loan amount. 

Base loan amount + MIP = Total Loan Amount

This non-qualifying loan is designed to potentially help borrowers who are seeking lower payments, and better financing, 

Often referred to as Non-Qualifying Streamline Refinance:

There are some restrictions, and one of those is a very important one. You cannot be late on your mortgage payment for the six months prior to your application. You can have no more than one 30-day late payment for the previous six months. An explanation must be written, and it must be an acceptable reason.

You must have made all monthly payments up to the disbursement of the new loan within the month due. In fact, this is a non-qualifying mortgage loan, and that is why it is called streamlined.

The process will take very little effort from you and will give you big results when the loan is closed. You do not have to worry about debt-to-income ratios (having a lot of debt), but you must have a consistent, on-time mortgage payment history.

Advantages of an FHA Streamline Refinance

The FHA Streamline Refinance program offers several advantages for homeowners looking to refinance their FHA-insured mortgages. Here are some of the key benefits:

1. Streamlined application process: The FHA Streamline Refinance program eliminates much of the paperwork and
documentation required for a traditional refinance. This means less hassle and a quicker approval process.

2. No appraisal required: Unlike traditional refinancing, an FHA Streamline Refinance does not require an appraisal of your home under most circumstances.  This can save you time and money, as you won’t need to pay for an appraisal or wait
for the results.

3. A credit report is not required: The FHA Streamline Refinance program non-qualifying loan has no requirement for a credit report. If you, the applicant(s) are opting for a qualified mortgage; a credit report is required.

**Note:  Different lenders may have their own varied guidelines and specifics for their own security of making a good loan.  *** This program generally allows for lower credit scores compared to other refinancing options. Lenders are graded on the quality of their loans.

4. Lower mortgage insurance premiums: If you currently pay mortgage insurance premiums (MIP) on your FHA loan, refinancing through the program may result in lower MIP costs. This can help reduce your overall monthly mortgage payment if you are lowering the loan amount.

FHA Streamline Refinance vs. Traditional Refinance

When it comes to refinancing your mortgage, you have two primary options: the FHA Streamline Refinance program and traditional refinancing. While both options aim to help homeowners save money and achieve their financial goals, there are some key differences to consider.

Traditional Refi vs Streamline Refi:

1. Documentation requirements: Traditional refinancing typically requires extensive documentation, including income verification, employment history, asset verifications, and appraisal. 

On the other hand, the FHA Streamline Refinance program has fewer documentation requirements, making it a more streamlined process.

2. Appraisal requirements: Traditional refinancing requires an appraisal to determine the current value of your home. This can be time-consuming and costly.

The FHA Streamline Refinance program, however, does not require an appraisal in most cases, saving you time and money.

3. Credit Reports and score requirements: Traditional refinancing has stricter credit requirements. A credit report if required, and minimum credit score limits. If you have a lower credit score, the FHA Streamline Refinance program may be a more accessible option for you.

4. Closing Costs:  Both traditional refinancing and the FHA Streamline Refinance program involve closing costs. However, the FHA Streamline Refinance program allows for the inclusion of these costs in the new loan amount, reducing the out-of-pocket expenses for the borrower. For the traditional refinance loan closing costs cannot be added to the loan amount.

It’s important to note that while the FHA Streamline Refinance program offers a simplified process and potentially lower costs, traditional refinancing may provide more flexibility in terms of loan options and eligibility requirements.

Consider your financial situation and goals to determine which option is best suited for your needs.

 How to qualify for an FHA Streamline Refinance:

To qualify for an FHA Streamline Refinance, you need to meet certain criteria.

Here’s a step-by-step guide on how to qualify for this program:

1. Check your current FHA loan:  You will need to provide proof of your current loan, unless, of course, you are going to use your current lender. This is to ensure that you have an existing FHA-insured loan that meets the streamlined guidelines. 

2. Verify your payment history:  Make sure you have made all your mortgage payments on time for the past 12 months. Late payments can disqualify you from the FHA Streamline Refinance program.

3. Your loan must meet the minimum waiting period requirement:  You must have been making your FHA mortgage payment for at least six months to be eligible. The time-lapse from the initial closing date must be 210 days before being eligible for a Streamline Refinance. 

4. **Determine the net tangible benefit: The refinance must result in a “net tangible benefit” for you as the borrower. This means the new loan should offer a significant financial advantage. Such as a lower interest rate, reduced monthly payment, or a loan term to make your payments smaller.

5. Gather necessary documentation:  While the FHA Streamline Refinance program requires less documentation compared to traditional refinancing, you may still need to provide certain documents, for proof of being consistently and currently employed.

Normally a qualifying refinance requires **Pay stubs, bank statements, verification of employment, and the entire documented file.

The lender may do a verbal verification of employment from your job to verify you are employed for a non-qualified loan. However, they might ask for paystub(s) or W-2 as evidence of employment. *Again, lenders may have specific methods for verifying employment.

6. Contact an FHA-approved lender: To start the FHA Streamline Refinance process, reach out to an FHA-approved lender. The easiest solution would be your current lender.

They will have your current mortgage file on hand to assist you and give you necessary requirements they deem necessary.

The lender will guide you through the application process, assess your eligibility, and provide you with the necessary forms and paperwork.

By following these steps and working with an FHA-approved lender, you can increase your chances of qualifying for an FHA Streamline Refinance and enjoying the benefits of this program.

Summary of  Eligibility Requirements for an FHA Streamline Refinance

To be eligible for an FHA Streamline Refinance, as we have stated, you must meet certain requirements set by the Federal Homeowners Association. These requirements include:

1. You must have an existing owner-occupied home loan that is an FHA-insured mortgage.

2. You must be current on your mortgage payments, with no late payments in the past 12 months. Your loan must be current.

3. If you closed on your current mortgage within the year, you must have paid your FHA loan mortgage payment for at least six months from the closing of your loan. *There is a minimum of 210 days from the prior closing date requirement.

4. The refinance must result in a “net tangible benefit” ** (as stated above) for the borrower(s), such as a lower interest rate or lower payment amount.

It’s important to note that individual lenders may have additional requirements, or vary in some instances. Regardless, it is essential to consult with a mortgage professional to determine if you meet all the eligibility criteria.