If you want to reduce the payment on your current FHA mortgage, even if your home is now worth less than you owe on it, the FHA Streamline Refinance could be just right for you. Remarkably, the FHA Streamline Refinance program requires no credit check, no employment or income verification and in most cases no appraisal of the property. Certain lenders may have their own requirements that “overlay” the FHA guidelines, but the FHA has incentives to encourage lenders to adopt their simplified application requirements.
FHA Streamline Refinance Programs
Streamline Refinance Without Appraisal
The FHA Streamline Refinance Program is one of few mortgage programs available for an underwater mortgage refinance, which means to refinance a loan where the borrower owes more than the property is currently worth. By waiving the requirement for an appraisal, the Streamline program gives underwater borrowers the opportunity to take advantage of today’s low rates and refinance their underwater mortgage. The maximum mortgage amount for a Streamline Refinance without appraisal is the lower of the following:
- Original Mortgage Loan Amount
- Existing Mortgage Debt Owed
What this basically means is that no matter how much your home is worth, you can lower your interest rate and payments with an FHA Streamline Refinance as long as you already have an FHA loan.
Streamline Refinance With Appraisal
The FHA Streamline Refinance with appraisal gives homeowners who already have an FHA loan a fast, simple option to lower their mortgage payments and reduce their interest rates without income verification, employment verification, or even a credit check in some cases. The maximum mortgage amount for a Streamline Refinance with appraisal is the lower of the following:
- 97.95% of the property’s current appraised value
- Existing Mortgage Debt Owed
If your home isn’t underwater in its equity, the Streamline program with appraisal is a great option to refinance into a lower rate and payment with as little paperwork and clutter as possible.
FHA Streamline Refinance Requirements
Basically, in order to qualify for FHA Streamline Refinance you must have had your existing FHA mortgage for at least 210 days. Then you must have a squeaky-clean payment history for the last three months. Even one 30-day-late will shut the gate on you. You can, however, have one late payment in the last 12 months. FHA Streamline Requirements are very relaxed compared to other mortgages. Here’s why:
- No maximum loan-to-value (and no appraisal).
- No applicant credit check.
- No employment verification.
- No income verification.
There are still some conditions that must be met to qualify. Here’s a rundown:
- Applicant’s current FHA mortgage must be older then 6 months.
- Applicant’s mortgage payments must be current for the month due and on time for the last three months.
- Applicant cannot have more than one late mortgage payment in the last year.
- Streamline Refinance must result in a “net tangible benefit” to the applicant, meaning it must produce results such as a minimum 5 percent drop in the mortgage payment amount, a transfer from an adjustable-rate to a fixed-rate, or a change in term length from 30 to 15 years.
- Applicant may not receive more than $500 cash back at closing.
Net Tangible Benefit
An FHA Streamline Refinance must provide you a “net tangible benefit”, meaning that one of these four good things must happen as a result of your refinancing:
- You save at least five percent on your mortgage payment.
- Your interest rate lowers by at least 2 percent if you move from a fixed to adjustable rate loan.
- Your interest rate increases no more than 2 percent if you move from an adjustable to a fixed rate loan.
- You reduce the term of your mortgage, for example from 30 to 15 years.
Cash out is not an option with an FHA Streamline Refinance no matter how much equity you have in your home. Also, the loan costs other than the upfront mortgage insurance premium can’t be added to the loan balance. You must either pay them in cash or the lender may sometimes waive them in exchange for a slightly higher interest rate on your loan.
FHA Streamline Refinance Costs and Fees
If you want to refinance an FHA loan that was endorsed prior to June, 2009, lucky you. In the summer of 2013, HUD announced they would allow the previously reduced FHA mortgage insurance premium rates to continue for loans endorsed prior to that. If your loan was endorsed in May, 2009 or earlier, your new upfront mortgage insurance premium is only .01 percent of the loan size, or $10 per $100,000. That compares to 1.75% if your loan was endorsed June, 09 or later, or $1750 per $100,000 – a huge difference! You may, however, get some refund of your earlier upfront mortgage insurance premium if you refinance your loan within 3 years.
Up Front Mortgage Insurance Premium (UFMIP)
- FHA Streamline Refinance
- Initial FHA loan endorsed before June 1st, 2009 – 0.01% of refinance loan amount
- Initial FHA loan endorsed after June 1st, 2009 – 1.75% of refinance loan amount
Also, annual mortgage insurance premiums for pre-June, 2009 loans are around .55% while those for June, 2009 or after loans typically range from .7% to 1.3% depending on the term of your loan and your loan-to-value ratio. Annual mortgage insurance is only required for eleven years if your loan-to-value ratio is 90% or less when you refinance.
Annual Mortgage Insurance Premium
- FHA Streamline Refinance
- Initial FHA loan endorsed before June 1st, 2009 – 0.55% percent annually
- Initial FHA loan endorsed after June 1st, 2009
- 30 year refinance with LTV greater than 95% – 1.35 percent annually
- 30 year refinance with LTV less than 95% – 1.30 percent annually
- 15 year refinance with LTV greater than 90% – 0.70 percent annually
- 15 year refinance with LTV less than 90% – 0.45 percent annually
So, if your FHA mortgage is pre-June, 09 and/or you are somewhere near underwater on your FHA mortgage, there is no better time to take a look at the FHA Streamline Refinance program. There are many variables in the programs offered by different lenders, whether interest rates, mortgage terms, closing costs or documentation requirements. All lenders have full disclosure requirements that allow you to effectively compare the many FHA Streamline Refinance programs available. Be sure to shop around and do your homework to find the program that is best for you.