What is Streamline Refinancing?
- 17 August, 2022
Streamline refinancing refers to special refinance programs available to homeowners who already have Federal Housing Administration (FHA) or Veteran Association (VA) Interest Rate Reduction Refinance Loan mortgages.
For those who qualify. it can be one of the easiest, fastest ways for homeowners to refinance mortgages at current, lower interest rates and monthly payments. They may not have to verify income, and there's minimal paperwork, which makes the process cheaper and faster.
Although it saves both time and money, it’s not available for everyone. Let’s take a look at how it works, some of the benefits, and qualification requirements.
What exactly is Streamline Refinancing?
Streamline refinancing replaces your current FHA loan with another one without providing many documents like other loans. It's available in two forms; credit qualifying and non-credit qualifying.
In credit qualifying streamline refinance, the lender must conduct a credit check, determine your debt-to-income (DTI) ratio, and evaluate your ability to repay the mortgage. For non-credit qualifying, these steps are not a requirement.
Credit qualifying streamlines refinance can be the better option under certain circumstances, like when removing guarantors from your mortgage. Presenting additional documents is also beneficial as there’s a possibility you’ll get a lower interest rate than in non-credit qualifying to refinance.
How the FHA Streamline Works
Streamline refinancing resembles regular refinance products. The new loan replaces the existing one but typically with lower monthly payments and interest rates.
The FHA Streamline can either have fixed rates or adjustable rates. The loan term is often between 15 and 30 years, with no prepayment penalties.
If the existing term is short, extending it on the new loan is easy to get lower monthly payments. However, you can only add a maximum of 12 years to the loan term.
What Do You Need to Qualify?
Streamline refinancing is only available to homeowners with existing FHA loans. You have the choice to refinance through your current lender or a new lender.
You only qualify for a streamlined refinance 210 days after closing on the current loan. Although a full credit check is not a must, you need to have made timely payments on your mortgage for at least 12 months.
Since you already have an FHA mortgage, it can be viewed as adequate assurance of your good credit. Therefore, you may not need to recalculate your debt-to-income ratio for the new loan. However, it's essential to have this information at hand.
The new loan shouldn’t exceed the initial loan amount. Your current loan balance and home equity will determine whether you need an appraisal. If your property value is higher, you can get a re-appraisal to check if you qualify for a higher loan amount.
Possible Benefits of Streamline Refinance
- Low Refinance Rates
- Lower Mortgage Insurance Premium Rates
Homeowners who acquired FHA loans between 2010 and 2015 have access to the current, lower annual mortgage insurance premiums through streamline refinancing.
- Mortgage Insurance Premium Refund
Streamline Refinance allows homeowners to get up to a 68% refund on the prepaid mortgage insurance. This refund is in the form of a discount on the new streamlined loan.
- No appraisal, Income Verification, and Credit Check
If your existing mortgage goes underwater or you lose your job, or your income reduces, you're still eligible for streamlined to refinance.
- If your credit score is not the best, you may still be able to get non-credit qualifying to refinance.
