FHA Streamline Refinance
This article will help borrowers who currently have an existing FHA Mortgage (Federal Housing Administration) decide whether an FHA Streamline Refinance is the best choice when it comes to refinancing their mortgage, how much could they expect to save, and when is it more beneficial to consider refinancing into a conventional mortgage instead of an FHA mortgage. So, let’s dive right into it.
What is an FHA streamline refinance loan?
FHA streamline is a term used for rate-and-term refinancing of one FHA loan into another FHA loan with reduced documentation. One can, for example, do an FHA streamline of an ARM loan (Adjustable Rate Mortgage) into a fixed rate loan or a fixed rate into an ARM. FHA Streamlines cannot be used to do cash-outs (take out home equity) or to refinance a non-FHA loan (ie. a Conventional loan).
The reason why a particular type of an FHA refinance transaction is called a “streamlined” refinance is that it offers a much simplified process, requiring less documentation from borrower(s) and it usually takes only around two weeks to complete. Generally speaking, it is an easy to qualify for mortgage that is open to borrower(s) who made at least 6 payments on their existing FHA loan, meaning the original FHA loan had to close at least 180 days ago (or 210 days in case of a previous FHA refinance). FHA Streamlines have other benefits as well.
Benefits of a FHA streamline refinance
FHA streamline refinance has no appraisal requirements
FHA Streamline Refinance does not require an appraisal of the property to determine its market value. Original property value (such as the original purchase price) can be used to determine loan-to-value. This is a great solution for all borrowers whose property values continue to decline, or declined significantly during the recession. Additionally, it saves borrowers anywhere between $400 and $500 on appraisal inspection fees (2014/2015 estimates).
FHA Streamline Refinance does not consider income as qualifying factor
This is another great news. As long as borrower(s) has a 2-year history in one line of work (not necessarily with the same employer), he qualifies for an FHA streamline refinance and current income levels are not considered in determining the loan eligibility.
FHA Streamline Refinance has lower credit history and credit score requirements
Credit history has also a lesser significance in FHA Streamline refinances, since, as previously stated, income is not a qualifying factor. Therefore, the amount of credit liabilities on borrower(s) credit history, including any newly acquired debt, does not affect the loan eligibility. Technically the borrower(s) can have more liabilities on their credit than their current income levels and they will still qualify for a refinance through the FHA Streamline program.
It is worth mentioning however, that mortgage payment history is an important factor and applicants need to maintain a clear mortgage payment record for eligibility – that means no lates or missed payments on the existing FHA mortgage over the last 6 months, and no loan modifications, or pre-foreclosures.
People often inquire about the minimum FICO score requirement for an FHA streamline refinance, and so it is worth noting that, although we do have lenders that can refinance with FICO scores as low as 550 or 580, it is highly recommended to improve FICOs to 620-640 levels or above for the best interest rates and the most beneficial mortgage terms. Often improving credit rating is not a difficult task and any experienced loan originator should be able to offer some quick pointers on increasing the FICO scores by 50-100 points in a relatively short time.
FHA Streamline Refinance low closing costs
Perhaps the most pleasant and immediate surprise about the FHA Streamline refinances are the significantly lower closing costs in comparison to other types of mortgage transactions. In Streamline refinance reputable lenders will charge only the following fees:
- Loan underwriting fees – $0 – $900 (depending on lender)
- Title commitment policy – $750 – $900
- Credit history check – $25 – $50
- Appraisal fee (only if borrower(s) wish to appraise the property to consider a higher, present market value)
There are no other hard closing costs involved, although the borrower(s) are still subject to setting up new escrow accounts and such escrow account typically require initial deposit. Conversely, the lender holding the existing FHA mortgage refunds borrower(s) any escrow surplus currently held.
Please note: FHA Streamline Transactions do not allow to add, or “roll in” any closing costs into the principal balance of the new mortgage and no additional funds can be withdrawn – in other words – no cash-outs are allowed.
Is an FHA streamline refinance worth it?
At this point you might be probably asking yourself: should I do a FHA streamline refinance? Does refinancing into a conventional mortgage makes more sense? Typically, a detailed analysis needs to be performed for each scenario to determine a refinance program that offers the most benefits to the borrower(s), however here are a few simplified guidelines that should help anyone evaluate whether an FHA Streamline refinance could be the right choice:
Compare your existing loan’s interest rate with today’s FHA rates. For your convenience we provide a daily FHA interest rates survey in the right-side column (Please remember that the final loan’s interest rate is always determined factors, such as: borrower(s) credit profile, property type, loan-to-value ratios, etc., and so the interest rates provided here should serves as an estimate rather than an actual rate quote).
If today’s FHA interest rates are comparable or lower than the interest rate on your present FHA mortgage than it is generally recommended to do an FHA Streamline since larger savings are still to be gained (outlined in pt.2 and pt.3, below). In contrary to the popular belief interest rate is not the single most important factor for FHA streamline refinance loans.
Estimate your property’s current market value. You can estimate property’s value using Zillow.com, or any other comparable, free service.
If the principal loan balance of your existing mortgage is above 95% of the current property value (95% loan-to-value) than it is generally recommended to do an FHA Streamline vs. Conventional refinance. If a principal loan balance of your existing mortgage is below 90% of the current property value (90% loan-to-value) than it is recommended to do a Conventional refinance vs. FHA Streamline Refinance since it might be possible to eliminate the MIP (Mortgage Insurance Premium) completely, thus dramatically reducing the overall monthly payments.
Determine if your loan closed on, or after May 31, 2009. On January 2015, FHA administration has significantly reduced the MIP factors to the lowest levels since October 2010. Thus any loan with a higher, existing annual MIP will automatically benefit from refinancing to a reduced, annual MIP through FHA Streamline Refinance (that includes many loans originated on, or after May 31, 2009 also, thus any FHA loan endorsed on, or after May 31, 2009 could qualify for reduced annual MIP and should be further examined for eligibility).
Prior to January 2008 : 0.50% annual MIP
October 2008 : 0.55% annual MIP
April 2010 : 0.55% annual MIP
October 2010 : 0.90% annual MIP
April 2011 : 1.15% annual MIP
April 2012 : 1.25% annual MIP
April 2013 : 1.35% annual MIP
January 2015 : 0.85% annual MIP
If your existing mortgage closed on, or after May 31, 2009 it most likely qualifies for an annual MIP reduction through FHA Streamline Refinance which can significantly reduce your monthly payments.
FHA streamline vs conventional refinance
Finally there is a matter of considering refinancing into another mortgage type altogether – notably the conventional mortgage. In general, here are the three most common reasons to consider for refinancing from an FHA to a Conventional loan;
|If a principal loan balance of your existing mortgage is below 90% of the current property value (90% loan-to-value) than it is generally recommended to do a Conventional refinance vs. FHA Streamline Refinance since a good lender could try to eliminate the MIP (Mortgage Insurance Premium) completely, thus dramatically reducing the overall monthly payments.|
|If you wish to add a new borrowers or remove any of the borrowers from the existing loan than it is generally recommended to do a Conventional refinance vs. FHA Streamline Refinance|
|If you wish to take out equity from your property or include closing costs in the principal loan balance of your new mortgage than it is generally recommended to do a Conventional refinance vs. FHA Streamline Refinance.|
The benefits of FHA Streamline Refinance are plentiful, but whether one should consider refinancing through an FHA Streamline Refinance or not usually depends on crunching the numbers and comparing all the alternatives. For that reason we offer quick, over-the-phone free consultation about refinancing mortgage loans on properties located in Illinois. Please call 773-575-1609 to talk to qualified mortgage consultant or please fill out the form below for someone to contact you.
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