If you’re considering refinancing you’re likely to run across the term Streamline Refinance. What is a streamline refinance and does it apply to you? Despite government refinance programs like HARP 2.0, many people are having trouble qualifying for mortgage refinancing. Streamline refinance is a quick and easy alternative to mortgage refinance loans with lower costs and qualifications. Here are the basics you need to know if a streamline refinance is available to you.
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that can save you thousands of dollars on your next home loan.
Streamline Refinance Definition
The term streamline refinance usually applies to FHA home loans. The VA and USDA have their own refinance programs with different names but I’ll get to those in a moment. Streamline refinance is a way of taking advantage of today’s low refinance mortgage rates with less legwork and paperwork than conventional mortgage refinancing. For some homeowners this will be an option where their application would otherwise be denied.
There are requirements that must be met to qualify depending on the program. With the FHA for example, there must be a tangible benefit to refinancing. Lowering your interest rate, changing from a fixed rate mortgage to an adjustable rate mortgage or lowering your term length from 30-years to 15-years are all examples of tangible benefits.
In addition to demonstrating tangible benefit you must be current on your payments. There are government programs for homeowners who are unable to make payments (the Home Affordable Modification Program HAMP is one such program); however, with any government refinance program you must not have late payments.
Streamline refinance programs will not allow you to take cash out. If your goal for mortgage refinancing is to borrow against your home equity a streamline refinance is not the program for you.
FHA Streamline Refinance Program
One of the advantages of an FHA streamline refinance is that income and employment verification may not be required. There are also minimal credit requirements to meet; although, the FHA is toying with the notion of not approving homeowners that have active collection accounts on their credit reports.
President Obama lowered mortgage insurance premiums for FHA Streamline Refinance to make the program available to more homeowners.
Streamline refinance programs cut through red-tape and allow for less paperwork, faster underwriting, and lower fees. In most cases you will not be required to pay for a new appraisal. This is a rundown of the guidelines set in place by the FHA. Individual lenders can impose their own requirements so if your existing lender is giving you a hard time you can kick them to the curb and find another lender.
If your existing mortgage is an FHA home loan and is in good standing you can lower your payment and save a lot of cash at closing with the FHA streamline refinance. If you’re not with the FHA check with your lender as many offer similar programs.
VA Streamline Refinance
The VA doesn’t call the program by this name; however, the agency’s Interest Rate Reduction Refinancing Loan (IRRRL) does the same thing. The Veteran’s Administration has the same basic rules for the IRRRL program and taking cash out is not allowed. You will not need a new appraisal or income/credit verification and you have the option of rolling your closing costs into your balance. You don’t need to get a new certificate of eligibility from the VA so the process is much quicker.
HARP 2.0 Program Requirements
HARP isn’t a streamline refinance program but a government refinance program for underwater homeowners. The program requirements under HARP 2.0 allow for unlimited loan-to-value ratios; however, we’re finding that many lenders are imposing their own LTV requirements. If you’re finding your HARP application is still being denied because of your LTV try shopping around for a different lender. Community based credit unions are an excellent starting place as they have less stringent in-house underwriting requirements.
The basic requirements for the Home Affordable Refinance Program (HARP 2.0) are that your home loan is owned by Freddie Mac or Fannie Mae and they must have purchased it before May 31st, 2009. You must have less than 20% equity in your home to qualify for HARP. Lastly, you must be current on your payments with zero late payments in the last six months and only one late payment in the last year.
HARP 2.0 doesn’t have the same advantage as a streamline refinance when it comes to the paperwork and lender fees so it’s important to shop around comparing things like the origination fee.
Shop Around for the Best Deal
No matter what type of mortgage refinancing you’re in the market for it’s important to shop around for the best mortgage lenders. One of the most common mortgage mistakes is focusing only on getting the lowest refinance rates at the expense of fees.
Overpaying the loan origination fee or paying unnecessary discount points will make it much more difficult, even impossible to recoup your out-of-pocket expenses. If you don’t break even on your closing costs you’re going to be losing money no matter how great your interest rate.
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