FHA Streamline Refinance
The Federal Housing Administration (also known as FHA) has allowed FHA streamline refinances on federally insured mortgages since the early 80's. Since then, many FHA homeowners have utilized this program to lower their interest rate with relatively low costs. There is much confusion on the term "streamline" as some borrowers think there are no costs. It simply means there is very little documentation and underwriting that needs to be performed by the lender. For example, an FHA streamlined refinance loan requires a verified income source but not a documented amount or calculated Debt-to-Income. Although, there may be still small minor costs involved in the transaction.
FHA Loan Refinance Overview
In a typical FHA streamline refinance, there isn't any credit underwriting required, unless the principal mortgage balance is increasing, in which case, HUD will need to have a 12 month mortgage payment history. This mortgage loan allows new person(s) to be added to title on a FHA streamline refinance without a review of their credit report. If you want to remove someone from title on a streamline refinance, you may need to requalify for the loan. (certain exceptions may apply).
FHA Streamline Refinancing Guidelines
The standard requirements of a FHA streamline refinance are as follows:
1.) The mortgage you want to refinance has to be FHA insured
2.) All mortgage payments must have been paid current by the borrower
3.) The new principal and interest mortgage payment on a refinance must be less than the current mortgage payment
4.) Receiving cash back is not permitted on a FHA refinance.
5.) If the borrower has a existing second mortgage it may remain as long as it is re-subordinated to the new mortgage loan.
6.) To be eligibile, the borrower must own the property and have had the FHA mortgage for at least six months prior to refinancing.
7.) The term of the new FHA mortgage must be the lesser of 30 years or the unexpired term of the mortgage plus 12 years. A borrower cannot refinance from a 15 year loan to a 30 year loan.
8.) An appraisal is not required unless the closing costs are wrapped into the loan. Streamline refinances without an appraisal are limited to the unpaid principal balance, minus any refund credit of the mortgage insurance premium (MIP), plus the new upfront MIP if it is to be financed in the mortgage.
9.) The borrower cannot be late, delinquent, or in default of any federal debt.
A streamline refinance loan can be done in a couple of ways:
A.) A Streamline Refinance can include the closing costs into the new mortgage loan. This can only be done if there is sufficient equity in the property, to be determined by an appraisal. This program offers the best rate.
B.) There is a "no cost" Streamline Refinance which has no expenses or cost to the borrower. This streamline refinance is done without an appraisal and the new loan amount cannot exceed what is currently owed, i.e., closing costs may not be added to the new mortgage. These closing costs will be paid by the lender. Investment properties (properties in which the borrower does not reside in as his or her principal residence) may only be refinanced without an appraisal and, thus, closing costs may not be included in the new mortgage amount.
California FHA Loan Limits and other states.