What Is an FHA Streamlined Loan?

Do you want to refinance your Federal Housing Authority (FHA) mortgage, but worry that the application will be too complicated? The FHA Streamline Refinance program simplifies the home refinancing process and makes it easy to improve your mortgage rates.

FHA Streamlined Loan Benefits

By using information from your original FHA loan, the Streamline program can waive the extensive documentation and underwriting typical of refinancing products.

A defining characteristic of an FHA Streamlined loan is that it does not require a home appraisal.

Instead, your original purchase price is used as the home’s current value, regardless of its actual worth. There is also an unlimited loan-to-value ratio, meaning you can refinance your home without additional cost or penalty even if you are underwater on your loan.

Are You Eligible for an FHA Streamline Refinance?

While it is easier than “traditional” refinancing, the FHA does require you to meet some minimum standards. To start, you must have a current FHA-insured mortgage, have a legitimate reason for refinancing (such as a lower interest rate), and the amount of cash you can take out on a Streamline Refinance mortgage is limited to $500 or less.

Payment History

You need a perfect payment history for three months before your application if refinancing a mortgage that is more than a year old. Only one late payment is allowed in the past 12 months. If your mortgage is less than 12 months old, all payments must be on time.

Waiting Period

You must wait a minimum of 210 days after closing on your current FHA-insured loan before you will be eligible to refinance. You also need to have made at least six payments on your mortgage.

Covering Loan Costs

The FHA will not increase refinanced loan balances to pay for charges like title fees. You must pay these charges, often in cash, at the closing. You can also apply for a “zero-cost FHA Streamline” where these charges are credited in full by the lender.

No Verification Needed

Employment and annual income verification are not necessary for the Streamline program. The FHA also does not verify credit scores for Streamline loans, preferring to use your payment history as a gauge for future loan performance. However, some lenders may still require that you meet specific credit scores. Always check guidelines before applying.

Once obtained, FHA Streamline loans work much like any other refinancing option. They are available as fixed rate or adjustable rate mortgages, come in 15 or 30-year terms, and have no prepayment penalty.

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Written by Michael Curry

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