The FHA streamline refinance is a special program allowing homeowners with FHA home loans to take advantage of today’s low refinance rates without red tape. These loans are intended to offer easy qualifications, no appraisal and require significantly less paperwork. The problem is lenders are shying away from these loans because there’s very little in it for them. Here are several tips to help you find a lender willing to approve your FHA streamline Refinance.
FHA Streamline Refinance Requirements
The main requirement for an FHA streamline refinance is that you have a perfect payment history for the last 12 months. If you have any 30-day, 60-day, or 90-day late payments from the past year you cannot qualify for an FHA streamline refinance. According to the FHA Commissioner the streamline refinance is intended to help responsible homeowners who pay their bills on time take advantage of historically low refinance rates.
There is also a “cooling period” where you must have made at least six payments on your current FHA home loan before you’ll be eligible for the streamline refinance. There must also be a tangible benefit to mortgage refinancing like lowering your payment or converting and adjustable rate mortgage to a fixed rate home loan. Another catch is that you cannot take cash out at closing. The rules stipulate your mortgage balance cannot increase as a result of the streamline refinance.
If you’re shopping for a streamline refinance you’re likely to encounter lender overlays. What’s an overlay? These are additional requirements for appraisals, credit scores, even loan-to-value ratio enforced by individual lenders. Even though this is government refinance program lender participation is voluntary meaning lenders are free to enforce their own program overlays.
Reduced FHA Mortgage Insurance Premiums
If your original FHA home loan closed before June 1st, 2009 you’re considered “grandfathered” for reduced mortgage insurance premiums. This applies to both the upfront mortgage insurance premiums and the annual mortgage insurance premium. Your upfront FHA mortgage insurance premium will be .01 percent of your loan amount. That’s just $10 for every $100,000 refinanced. Grandfathered annual mortgage insurance premiums are also fairly cheap at .55 percent.
If you have a newer FHA home loan your upfront mortgage insurance premium is 1.75 percent of the loan amount. The annual mortgage premium for FHA home loans closed after June 1st 2009 ranges from .60 percent to 1.25 percent depending on your loan’s term length and loan-to-value ratio.
One of the major benefits of the FHA streamline refinance is that the program does not require an appraisal or have credit score requirements. This means underwater homeowners can qualify for the program; however, finding a lender to approve your application could be difficult. Most lenders enforce their own overlay requirements demanding a new appraisal and credit scores as high as 680.
If you’re an underwater homeowner or have credit challenges you may need to shop from a variety of lenders just to find one willing to approve your FHA streamline refinance.
The FHA streamline refinance might seem like an attractive alternative to traditional mortgage refinancing; however, you almost need stellar financials just to get approved. Most lenders have overlays for the program requiring extensive documentation in some cases to offset risk. If you qualify the FHA streamline refinance could lower your payment by as much as $250 on average. Unless you have very strong financials the process might not be as streamlined as you think.
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