Complete Guide to FHA Streamline Refinance

FHA Streamline Refinance
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Lower rates, quicker processing, limited borrower documentation required and typically at a reduced cost; that is the FHA Streamline.

In order to qualify, you must currently be in an FHA loan and a pulse - kinda.

While the hype surrounding the FHA streamline refinance program makes it sound fabulous, and if all mortgage lenders followed the true FHA underwriting guidelines it would be. The reality is that mortgage lenders often put what are called “overlays” on FHA guidelines.

In other words, while the FHA says you can basically refinance your underwater home even if you have bad credit and are unemployed, most lenders require you to meet a certain level of standards.

It is always a good idea to check with your mortgage lender on their FHA Streamline Refinance process and underwriting overlays prior to applying.

It is also very important to note that just because one FHA lender turned your streamline refi application down, does not mean that you don’t qualify. Always get a second opinion before throwing in the towel.

So, how does it work and how do you qualify?

How the FHA Streamline refinance works

  • FHA Streamline is a refinance program for homeowners currently in an FHA loan.

  • FHA Streamline is offered as a 5-year ARM (adjustable rate mortgage) or either a 15-year or 30-year fixed rate loan.

  • No appraisal required.

  • Minimal credit requirements.

  • Limited “Cash-Out” available

    Is an FHA Streamline refinance right for you?

    If you’re in an FHA loan now and:

    • Your current mortgage rate is higher than today’s mortgage rates.

    • You owe more on your mortgage than your home is worth.

    • You are looking to reduce your monthly mortgage payment

    • You want to change from your adjustable rate mortgage into a more secure fixed rate mortgage.

      All in all, the FHA provides an amazing opportunity for first-time and rebound buyers to get a mortgage when they may not qualify for traditional financing offered by Fannie Mae and Freddie Mac.

      With reasonable credit qualifications and the ability to track market interest rates down easily and with minimal documentation via an FHA streamline refinance; FHA financing is worth exploring for many home buyers.

      Canceling Your FHA Mortgage Insurance Premiums

      Not all FHA-insured homeowners have MI and not all can have their MIP automatically canceled at 78% LTV.

      Some mortgages have to pay MIP for the next 30 years barring a refinance. Those loans were originated during a specific window where FHA was struggling to meet their federally mandated reserve requirements.

      Check with your loan officer to see if your loan falls during that window.

      First, let's talk about homeowners with an FHA mortgage pre-dating June 3, 2013. For these homeowners, their FHA MIP will automatically cancel under the following circumstances:

      • For 30-year mortgages : Annual MIP cancels once the loan reaches 78% loan-to-value and annual MIP has been paid for at least 60 months.

      • For 15-year mortgages : Annual MIP cancels once the loan reaches 78% loan-to-value. There is no requirement for MIP to be paid for at least 60 months.

        Homeowners should note that LTV calculations are based on the FHA's last known value of the home -- not its current appraised value.

        For most homeowners, the “last known value” is the appraised value of the home at the date of purchase.

        Normally, a 30-year FHA mortgage with the standard 3.5 percent down payment will reach 78% LTV in around 11 years. A 15-year fixed with 3.5 percent down would reach 78% LTV in less than three years.

        So, for homeowners with a mortgage from June 2013 or earlier, one option to end FHA MIP is to just wait until your mortgage insurance premiums drop off.

        You can also proactively pursue an FHA Streamline Refinance if you just do not want to wait for your mortgage insurance to drop off and market conditions make it feasible to refinance.

        The FHA also offers a traditional refinance with a current appraisal to determine the value.

        In a housing market with rising home values, this can also be a viable option to remove your mortgage insurance and possibly even get some cash out.