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The FHA Streamline Refinance : The Complete Mortgage Guidelines (Plus Mortgage Rates)

Nov 7, 2011   //   by Ben Gerritsen   //   Loan Programs Info, Mortgage News  //  Comments Off on The FHA Streamline Refinance : The Complete Mortgage Guidelines (Plus Mortgage Rates)

This FHA Streamline Refinance information is accurate as of today, November 7, 2011. If you get FHA Streamline Refinance information somewhere else, it may be inaccurate or out-of-date.

What Is An FHA Streamline Refinance?

The FHA Streamline Refinance is a special mortgage product, reserved for homeowners with existing FHA mortgages. Homeowners with conventional mortgages via Fannie Mae or Freddie can’t use it. FHA Streamline Refinances are the fastest, simplest way for FHA-insured homeowners to refinance their respective mortgages.

The FHA Streamline Refinance program’s defining characteristic is that it does not require a home appraisal. Instead, the FHA will allow you to use your original purchase price as your home’s current value, regardless of what your home is actually worth today.

In the words, with its FHA Streamline Refinance program, the FHA does not care if you are underwater on your mortgage. In fact, the program encourages it. Even if you owe twice what your home is now worth, the FHA will refinance your home without added cost or penalty.

The FHA allows for unlimited loan-to-value with its Streamline Refi program — a huge help to FHA homeowners in places like Florida, California, and Arizona where home values have plunged since 2007.

Beyond the “no appraisal” part, though, an FHA Streamline Refinance mortgages is similar to most other loan products. It’s available as fixed rate or adjustable mortgage; it comes with 15- or 30-year terms; and there’s no prepayment penalty to worry about.

Plus, interest rates are as low as with a “regular” FHA mortgage product.

Click here to apply for an FHA Streamline Refinance

FHA Streamline : No Verification Of Job, Income, Credit

In April 2011, while the rest of the world was making it harder to get approved for a mortgage, the FHA was making it easier.

In a sweeping guideline update, the FHA abolished verification for practically everything on an FHA Streamline Refinance mortgage application. Now, as written in the FHA’s official mortgage guidelines, the mortgage approval process for an FHA Streamline Refinance says :

  1. Employment verification is not required with an FHA Streamline Refinance
  2. Income verification is not required with an FHA Streamline Refinance
  3. Credit score verification is not required with an FHA Streamline Refinance

And, as mentioned earlier, there’s no need for a home appraisal, either.

Click here to apply for an FHA Streamline Refinance

Put it all together and it means that you can be (1) out-of-work, (2) without income, (3) with a terrible credit rating and (4) having lost all of your home equity — and yet, you will still be approved for the FHA Streamline Refinance program.

That’s not as crazy as it sounds, by the way.

To understand why the FHA Streamline Refinance is a smart program for the FHA, we have to remember that the FHA’s chief role is to insure mortgages — not “make” them.

Therefore, it’s in the FHA’s best interest to help as many people as possible qualify for today’s low mortgage rates. Lower mortgage rates means lower monthly payments which, in theory, leads to fewer loan defaults.

This is good for homeowners that want lower mortgage rates, and for the FHA, but mostly for the FHA.

Are You FHA Streamline Refinance Eligible?

Although the FHA Streamline Refinance eschews the “traditional” mortgage verifications of income and credit score, as examples, the program does enforce minimum standards for applicants. The official FHA Streamline Refinance guidelines are below.

Click here to apply for an FHA Streamline Refinance

Perfect, 12-Month Payment History Is Required

The FHA’s main goal is to reduce its overall loan pool risk. Therefore, it’s number one qualification standard is that homeowners using the Streamline Refinance program must have a perfect payment history stretching back 12 months. 30-day, 60-day, and 90-day lates are not allowed. Furthermore, loans must be current at the time of closing.

210-Day “Waiting Period” Between Refinances

The FHA requires that borrowers make 6 mortgage payments on their current FHA-insured loan, and that 210 days pass from the most recent closing date, in order to be eligible for a Streamline Refinance.

Employment And Income Are Not Verified

The FHA does not require verification of a borrower’s employment or annual income as part of the FHA Streamline process. There is no Verification of Employment, nor are there paystubs, W-2s or tax returns required for approval. You can be unemployed and get approved for a FHA Streamline Refinance so long as you still meet the other program requirements.

Credit Scores Are Not Verified

The FHA does not verify credit scores as part of the FHA Streamline Refinance program. Instead, it uses payment history as a gauge for future loan performance. This means that credit scores of below 620, below 580, and below 500 are eligible for Streamline Refis.

The Refinance Must Have “Purpose”

Streamline Refinance applicants must demonstrate that there’s a Net Tangible Benefit in the refinance; a legitimate reason for refinancing. Loosely, Net Tangible Benefit is defined as reducing the (principal + interest + mortgage insurance) component of the mortgage payment by 5 percent or more.  Refinancing from an ARM into a fixed rate loan is an automatic Net Tangible Benefit. Taking “cash out” to pay bills is not an allowable Net Tangible Benefit.

Loan Balances May Not Increase To Cover Loan Costs

The FHA prohibits increasing a Streamline Refinance’s loan balance to cover associated loan charges. The new loan balance is limited by the math formula of (Current Principal Balance + Upfront Mortgage Insurance Premium). All other costs — origination charges, title charges, escrow population — must be either (1) Paid by the borrower as cash at closing, or (2) Credited by the loan officer in full. The latter is called a “zero-cost FHA Streamline”.

Click here to apply for an FHA Streamline Refinance

Appraisals Not Required

The FHA isn’t concerned about home value — it’s insuring your loan regardless. Therefore, the FHA does not require appraisals for its Streamline Refinance program. Instead, it uses the original purchase price of your home, or the most recent appraised value, as its valuation point. Homes that are underwater are still FHA Streamline-eligible.

FHA Streamline Refinance Mortgage Insurance Requirements

The FHA Streamline Refinance is an FHA-insured mortgage, and FHA borrowers are required to make two types of mortgage insurance payments — an upfront mortgage insurance payment paid at closing, and an annual one paid in 12 monthly installments along with your mortgage.

Upfront mortgage insurance  is equal to 1 percent of your loan size. For example, if your FHA Streamline Refinance is for a new $100,000 mortgage, it would require a $1,000 upfront mortgage insurance premium (MIP) to be paid at closing. Upfront MIP is not paid with cash, though. Rather, the FHA automatically rolls the payment into your new loan balance.

The good news about Upfront MIP is that you can get a refund on it. If you refinance your FHA mortgage during its first 36 months, a portion of your original Upfront MIP gets credited to your new Upfront MIP payment. The complete refund chart is at top.

As an example, refinancing after 11 months grants a 60% refund, but refinancing after 12 months reduces that refund to 58%. This is why is rarely a good idea to “wait to refinance”.

With the FHA Streamline Refinance, the sooner you refinance, the bigger your MIP refund.

Click here to apply for an FHA Streamline Refinance

The other type of FHA mortgage insurance — annual MIP — is ongoing mortgage insurance included with your monthly mortgage payment. Annual MIP mandatory for all FHA Streamline Refinance applicants for a period of 60 months only after which the FHA stops charging it.

The FHA charges annual mortgage insurance according to the schedule below:

  • 15-year loan terms, over 90% loan-to-value : 0.50% MIP
  • 15-year loan terms, under 90% loan-to-value : 0.25% MIP
  • 30-year loan terms, over 95% loan-to-value : 1.15% MIP
  • 30-year loan terms, under 95% loan-to-value : 1.10% MIP

Note that mortgage insurance payments are included in the FHA’s Net Tangible Benefit requirement. You must lower your monthly payment by at 5 percent to qualify for the FHA Streamline Refinance.

Apply For Your FHA Streamline Refinance Here

The FHA Streamline Refinance is among the easiest and best-valued mortgage products available.

If you have an existing FHA mortgage, get yourself a FHA Streamline Refinance rate quote. FHA mortgage rates are low and my office underwrites and funds FHA loan in-house. This means we can close your mortgage faster, entitling you to a bigger FHA refund check on your Streamline Refinance.

Click here to apply for an FHA Streamline Refinance and start your Streamline Refi application.

This FHA Streamline Refinance information is accurate as of today, November 7, 2011. If you get FHA Streamline Refinance information somewhere else, it may be inaccurate or out-of-date.

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