Between the paperwork, fees and seemingly endless phone calls to your lender, refinancing your home can be a major headache. If your mortgage loan is insured by the Federal Housing Administration, you may be able to avoid some of the hassle by applying for an FHA Streamline Refinance. You have to meet certain requirements to qualify and it helps to understand what to expect before you get started. If you’re interested in applying for a streamline refinance, here’s a breakdown of how the program works.
What It Is
The FHA streamline refinance program is designed to help homeowners save time and money during the refinance process. Unlike a traditional refinance, there’s not as much documentation required and the underwriting process typically takes less time. Homeowners don’t have to verify their employment or income and credit scores typically aren’t taken into consideration. The other major difference is that a home appraisal is not necessary to refinance.
1. You must have an FHA loan
There are some basic requirements that homeowners must meet to qualify for a streamline refinance. First, your loan has to be insured by the FHA. There are no exceptions to this rule. So if you got your mortgage from the Veterans Administration or a traditional lender you’ll have to look into other options for refinancing.
2. You can’t be late on your mortgage and you have to have had the mortgage for at least 210 days.
The next criteria is you have to be current on your mortgage. You must have made all of your payments on time and in-full for the last twelve months. Otherwise you’re ineligible for the program. If you’ve previously refinanced, you have to wait 210 days from the closing date to apply for an FHA streamline refinance and have made at least six payments on your mortgage.
3. The refinance must make financial sense.
According to the federal guidelines, a streamline refinance has to result in one of the following: a reduction of your monthly payment or the conversion of an adjustable rate mortgage to a fixed-rate loan. You can’t use a streamline refinance to cash out the equity in your home and your loan balance can’t be increased as a result of the refinance.
FHA Mortgage Insurance Requirement
If you’ve got an FHA loan, you already know that you’re required to pay upfront and annual mortgage insurance premiums. This requirement doesn’t change if you’re doing a streamline refinance. If you took out your current mortgage prior to June 1, 2009 you’ll have to pay an upfront premium of 0.01 percent of the loan amount. The annual premium is 0.55 percent of what you initially borrowed but you can cancel the insurance once your loan balance drops below 78 percent.
If you got an FHA mortgage after June 1, 2009 the upfront and annual premiums are significantly higher. The upfront premium is 1.75 percent and the annual premium can range from 0.45 percent to 1.35, depending on your loan term. If your loan-to-value ratio was 90 percent or less at closing, you can eliminate the annual premiums after 11 years. If your loan-to-value ratio was more than 90 percent, you’re stuck paying the premiums for the life of the loan.
Pros and Cons of a Streamline Refinance
A streamline refinance offers several advantages for homeowners who are looking to save on their mortgage. With no credit check or employment verification required, it’s relatively easy to qualify compared to a traditional refinance. Not having to get a home appraisal is also a boon, particularly for homeowners who are still underwater.
The biggest drawbacks of a streamline refinance are having to pay the mortgage insurance premiums and closing costs. If you’ve got a newer FHA loan, you can expect your upfront and annual premiums to be higher, which means your payments could also go up.
You won’t be able to finance your closing costs into the new loan so you’ll have to make sure you’ve got enough cash on hand to cover it. Some lenders may offer a no-closing cost loan but this could actually end up costing you more in the long run so you should consider it carefully.
The Bottom Line
A streamline refinance will most likely save you money if you took out your FHA loan before June 1, 2009 but it’s not a guarantee if you’ve got a newer loan. Your best bet is to look into your refinancing options before making a decision. Doing a little research beforehand could save you thousands of dollars later on.
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