When you are trying to refinance your property, you might want to consider FHA Streamline Refinance. It is a program made by the Federal Housing Administration (FHA) that allows you to refinance your property with a supporting lender. But to apply for the refinance program, you must be using FHA-insured mortgages. The FHA is aimed to help families with moderate income to be homeowners. It is commonly used, especially for first-time homebuyers. There are also other qualifications that must be met. FHA Loan is also very beneficial for homeowners. Here are the things you need to know before using an FHA loan for your property!
About the FHA Loan
Before we get to the main point which is the FHA Streamline Refinance, you need to know about FHA Loans in general. It is a home mortgage that has government insurance. Managed by the Federal Housing Administration (FHA). Even though it has government insurance, it doesn’t necessarily mean that it is paid for by the government. Instead, it is issued by approved banks or lenders. The FHA loan itself is created in 1934 during the Great Depression. It allows families with average income to be homeowners. It is also a way to help the housing industry get back on its feet.
Having an established FHA Loan is also one of the requirements if you want to apply for the streamline program. The FHA-insured loan is also popular in the real estate world. Especially for first-time homebuyers. It is beneficial since it only requires a small number of down payments. The required credit score is relatively lower than other conventional mortgages. After signing the mortgage, borrowers have to pay an amount of 1.75% of the loan amount for up-front mortgage insurance. The annual fees for FHA loans range from 0.45% to 1.05%.
What is FHA Streamline and How Does It Work?
There will be times when the real estate market is going bad, and you’re paying more for a mortgage than the value of your home. This is where you need an FHA Streamline. It is refinancing loans for your property. It is named streamline because of the easier loan-applying process. But to be granted an FHA Streamline refinance, you need to establish FHA loans first. Streamline refinance is an option for people who wished to change mortgage plans. To apply for the streamline mortgage, typically there’s no need for an appraisal or credit check. However, it might differ according to the lender’s terms and conditions.
However, if you are thinking to apply an FHA Streamline for your investment property, you might want to reconsider. The FHA is pretty strict about what kind of property can be refinanced. Mostly it only allows your primary residency instead of vacation homes or property investments.
The FHA streamline program is divided into two. The first one is non-credit qualifying, and the second one is credit-qualifying refinances. But both have the same purpose to lower the principal and interest that needs to be paid. It is fully backed by the FHA. You might be asked to verify your current income, credit score and even debt-to-income ratio for the credit-qualifying refinances. In some cases, you might even be asked to submit an application with job verification. This is to determine whether your income can support the mortgages or not. However, you don’t need to do that if the refinances are non-credit qualifying.
FHA Refinance Guidelines
The FHA set basic guidelines for refinancing. There might be additional requirements depending on the lender, but the important points to pay attention to are included on this list.
1) FHA-insured mortgage – You need to have an FHA loan to apply for the FHA Streamline. It is to make sure that all loans are still managed by the FHA. It is also beneficial for the safety of the loans.
2) On-time payments history – You need to show the payments history and it has to be on time. If the initial mortgage is less than 12 months, then you have to pay all of them on time. But if the initial mortgage is more than 12 months, then you are allowed a one-time late payment. However, it should not exceeds 30 days late.
3) Waiting Period – To be able to use the refinance program, you must at least pay six mortgages on the current FHA loan. You also need to wait 20 days after the current mortgage closed.
4) Net-Tangible Benefit – A net tangible benefit is a solid reason why borrowers apply for refinancing. It could be as low as a 0.5% difference from the current mortgage. However, a net-tangible benefit will not be present if the homeowner pays less amount for a longer time. There are no financial benefits reached with the offered new plan.
5) Mortgage Insurance Premiums (MIP) – There are two types of MIPs, an upfront MIP and an annual MIP. The upfront MIP can be paid at the time of closing for 1.75% of the loan. Meanwhile, the annual MIP range between 0.45% to 1.05% of the initial mortgage. However, most people are rolling the upfront MIP to the total loans.
For net-tangible benefit example, a homeowner has an FHA loan opened in January 2021 with a rate of 3% and an annual MIP of 1% of the mortgage amount. The total rate would be 4%. At the end of the year, the homeowner applies for a streamline refinance with an initial rate of 2.75% and an annual MIP of 0.75%. The total rate would be 3.5%. This rate is 0.5% lower than the previous mortgage, therefore making the refinancing plan eligible to process. It qualifies the new mortgage as net-tangible and the homeowner are allowed to refinance.
FHA Streamline Refinance Pros and Cons
Before applying for refinancing, you might want to consider these pros and cons.
- No home appraisal
A home appraisal is a process in which a property is reviewed by an expert. This process is done to determine the value of the house. Oftentimes it is a time-consuming process in the traditional mortgage process. With FHA streamline refinance, there is no need for a home appraisal. Therefore you could close the deal faster.
- Reduced documentation
A non-credit qualifying refinance might not need to verify your documents. However, this is not the case if you get the credit qualifying to refinance. The documents you can reduce are job verification documents along with credit scores.
- Lower your monthly payment
To apply for the FHA Streamline, you need to present a net-tangible benefit. In which you are lowering the monthly payment. But you are not allowed to extend the payment period because it will be just the same as the previous mortgage. If you failed to create new plans that benefit you, you are not allowed to refinance.
- Additional closing cost
When you refinance, you are required to pay an additional closing cost. This cost should be from your own finance. It can’t be rolled into the total loan. However, some lenders might offer a higher interest if you can’t secure the closing cost.
- No cash back
If you are looking for cash-out, then refinancing is not the answer. FHA refinance simply just reduce the amount of mortgage you need to pay instead of giving cash out.
- Paying mortgage insurance
There are two types of mortgage insurance, upfront insurance and annual insurance. The upfront insurance can be paid at the time of closing for 1.75% of the loan. Meanwhile, the annual MIP range between 0.45% to 1.05% of the initial mortgage.
FHA Streamline Rates
According to mortgage reports, the average 30-year FHA rate is now at 5.875% with a 0.85% insurance fee. Meanwhile, the 15-year fixed FHA rate is 5.5% with a 0.85% insurance fee. It is relatively low and you can find a lender with low interest. It could be worth it if your current mortgage is already 6 months old and always paid on time. Refinancing will surely help you to gain more benefits. It is also beneficial for underwater homeowners. The one that owes the mortgage bigger than the house value.
How to Apply for an FHA Streamline Refinance
The first step you want to do when applying for an FHA streamline is to find an FHA-approved lender in the area of your house. Look for one with the minimum amount of fees and flexible loan rules. You will also need to prepare these documents in advance.
1) Current mortgage statement – The FHA streamline is pretty strict. You need to prepare a current mortgage statement that states you’ve been paying the loan on time for at least the last 6 months.
2) Mortgage note – A mortgage note is to show how much you’ve been paying the initial loans and the interest rates
3) Homeowners’ insurance information – this document is needed to provide additional information for the lender
4) Bank statements – Bank statements for at least 2 months back. This is necessary to show the lenders that you will be able to pay for the closing cost with your own finance.
While looking for lenders, you might want to pay attention to the Mortgage Insurance Premiums. Find lenders with affordable MIPs so that you can gain benefits from the refinancing process. You might also work with a real estate agent to help you choose the right lenders if you are a first-time homebuyer.
Is FHA Streamline worth it?
Depends on how much you could get the net-tangible benefit. If you could get it lowered by 0.8% to 1%, then it is worth it. You also need to make sure that the real estate price in your area isn’t dropping to deem an FHA streamline worth it. You could also compare the mortgage and match it to the price in your area. This will ensure you get the best deal in refinancing.
How long does an FHA Streamline Refinance take?
What’s interesting about this program is that it skips the home appraisal. Meaning there is no further check for the house value by an expert that will affect the refinancing application. You can close the deal no longer than a week after your application. But the average closing time is four to five weeks. This time is used to prepare the legal documents to close on the new loan.
Can I use FHA Streamline twice?
Yes, you can use the FHA Streamline more than once. However, you might need to pay attention to the waiting time and other requirements like the net-tangible benefit. You are allowed to apply for another refinancing program after at least 210 days after your last refinance. You also need to make sure that you paid the last three payments on time. It is important to pay attention so you could get the most benefit from refinancing.
Does the FHA streamline refinance affect your credit score?
It might be if you’re applying for the credit qualifying options. But oftentimes it doesn’t give that much of an effect especially if you only had the previous mortgage for a short time. You might want to pay attention when you apply for refinancing. The longer you stay in the same mortgage product will affect your credit score once you’re in a new mortgage plan. However, the FHA streamline will not affect your credit score if you aim for the non-credit qualifying option.
That is all you need to know about FHA Streamline Refinance. If your previous FHA loan is in good condition, then you might be qualified to use the FHA Streamline Refinance. Some of the benefits include doing a property refinance without an appraisal. The FHA Streamline Refinance can also be utilized more than once. After a certain period, you can apply for FHA Streamline Refinance for your property and earn benefits from the streamline rates. When you apply for the program, you might want to make sure what types of refinancing plans you are following. There are credit-qualifying refinancing and non-credit qualifying refinancing. What do you think are the best refinancing plans?