If you own a home and have an FHA mortgage, you have a unique opportunity available to you when and if you decide to refinance your loan. This opportunity is the FHA’s Streamline Refinance program. It was designed to give you more benefits when you refinance and to make the whole process easier. And let’s be honest, easier is definitely a good thing! If you’ve made the decision to refinance and you currently have a federally insured loan, you’re going to want to look into the streamline option.
What is an FHA Streamline Refinance?
You already have an existing mortgage and you know what it means to refinance, but what is the difference between normal refinancing options and the streamline option? Traditional options require that you have a certain amount of equity in the home before they will consider putting out a loan. They may be willing to consider other assets, such as an ample savings account or even a secondary property if your home does not have equity – they want to make sure they will get their money back if you default on the loan. Along these same lines, your loan to value ratio needs to be good. Lenders don’t want to carry the risk of a home that has been tapped out. Traditional lenders also require a good credit score. This is the case with all traditional loans, whether they are a refinance or not. Without good numbers, lenders are far less willing to work with potential homeowners.
Now an FHA streamline refinance operates a little differently. As mentioned, you can only get this loan if your current loan has already been acquired through the federally approved lenders. Unlike traditional lenders, you will not be required to get an appraisal on your home. Rather the amount you paid for the home is the perceived value. This is a huge asset for a homeowner if the home is in need of some expensive repairs or if the market has dropped. In addition, the federal guidelines no longer require proof of income, employment, or a credit score. You can still qualify for this if your credit is terrible and you’re unemployed. How’s that for easy?
While you are not required to prove a few small details, such as proof of employment, this doesn’t mean that you’re able to simply walk into a revamped loan. There are a few streamline requirements that the government does look at before they will sign the paperwork. First and foremost, you must have a good payment history. If you are not in good standing on your loan, chances are you won’t be able to get the adjusted loan that you’re looking for. Good standing simply means that you need to have your payments up to date, and they need to have been paid on time for at least the last three months. You cannot have more than one late payment on record in a year’s time. You also can’t refinance and then do it again three months later. There is a waiting period before you can qualify for another revamp. The last and possibly most important requirement is that there has to be a reason for taking out the loan. You need to be moving to a fixed mortgage from an ARM mortgage or be looking to reduce your interest, something along those lines. You can’t cash out your equity and use it for play money or bill money. There must be a purpose that applies directly to the loan and/or property.
The best benefit of this revamped loan is the option to reduce the interest rate. This is one of the biggest reasons people go for this option. They’ve already shown that they’re responsible homeowners and that they’re capable of handling the loan, and now they can take the steps to get that rate down which will save them thousands of dollars over the life of the loan. Even a half a percentage drop can make a huge difference. In addition, because no proof of income or employment is required, if a person is upside down in the loan he can get the refinance at a reduced interest rate, which lowers the monthly payment, which can sometimes enable a person to get back on top of his finances. The goal of the FHA streamline refinance is to free up a little extra cash, either to make paying bills easier or life a bit more full.