If you cannot afford your current Federal Housing Administration (FHA)-backed mortgage, you might consider a FHA streamline refinance. An FHA streamline refinance is a simplified way to reduce your mortgage payment and decrease your interest rate.
What is an FHA streamline loan?
By refinancing your mortgage through the FHA, you may obtain a lower interest rate or monthly payment.
When you refinance your mortgage, you must complete a series of tasks, such as having your home appraised and meeting strict lender standards concerning your credit history. The lender often needs multiple forms of documentation concerning your financial status, such as pay stubs, tax forms, and bank statements.
The FHA streamline loan allows you to refinance your FHA mortgage without completing the tasks typically associated with the loan refinance process. There is significantly less documentation necessary for the FHA streamline refinance than that associated with a traditional refinance.
Different lenders offer different types of refinancing. A non-credit streamline refinance does not call for a credit report, but a credit-qualifying streamline refinance does. Since you are refinancing your mortgage, rather than purchasing a new property, the required credit score for a credit-qualifying streamline refinance depends on how much equity you have in your home. Such equity is accrued from paying down your mortgage.
One of the ways that this loan option streamlines the refinance process is that it permits you to use the appraisal figure from your original mortgage. Your lender does not perform a new appraisal for an FHA streamline refinance, even if it suspects that your home has fallen in value. This makes an FHA streamline loan a terrific option for the borrower who owes more on a home than it is worth.
Check out how much your refinance will cost with Bankrate’s suite of tools.
What qualifications are required for an FHA streamline refinance?
Even though the qualification process for an FHA streamline refinance is less involved than the traditional refinance process, there are still a few criteria that borrowers must meet:
- Your existing mortgage must be an FHA-insured loan.
- Your mortgage payments must be up to date.
- You must receive some type of benefit from refinancing your mortgage.
What are the disadvantages of an FHA streamline refinance?
You cannot use the FHA streamline refinance process to take equity out of your home, which is called a cash-out refinance. An FHA streamline refinance is also not an option if you are delinquent on your payments, and it can’t help you get caught up on the money that you owe the mortgage company. In that instance, contact your mortgage lender to see if you qualify for hardship assistance or a mortgage modification.
Even though the procedure for an FHA streamline refinance is less time-consuming than other refinance alternatives, you still have to pay closing costs to refinance the loan. And you can’t roll the loan’s closing costs into the new mortgage. However, you do have the option to pay a slightly higher interest rate in exchange for a loan that has low or minimal closing costs.