August 18, 2015
In our last blog post we discussed some basics on FHA Streamline Refinance Loans. The FHA Streamline Refinance loan program permits lenders to process the loan paperwork for these refinances (FHA-to-FHA only) with no credit check in most cases.
But lenders are free to require a credit check, and there are some cases where the credit check is required if add-ons to the loan cause the borrower’s monthly payments to increase by 20% or more, but there are other circumstances that may also require credit-qualifying. HUD 4155.1 states:
“A credit qualifying streamline refinance must be considered:
–when a change in the mortgage term will result in an increase in the mortgage payment of more than 20%
–when deletion of a borrower or borrowers will trigger the due-on-sale clause
–following the assumption of a mortgage that occurred less than six months previously, and does not contain restrictions (i.e. due-on-sale clause) limiting assumption only to a creditworthy borrower, or
–following the assumption of a mortgage that occurred less than six months previously, and did not trigger the transferability restriction (that is, the due-on-sale clause), such as in a property transfer resulting from a divorce decree or by devise or descent.”
What are the rules for credit-qualifying FHA Streamline Refinance loans? According to HUD 4155.1, Chapter Six:
“Credit qualifying streamline refinances contain all the normal features of a streamline refinance, but provide a level of assurance for continued performance on the mortgage. The lender must provide evidence that the remaining borrowers have an acceptable credit history and ability to make payments.”
The rules for credit qualifying Streamline transactions differs from the no-credit-check version. Chapter Six instructs the lender:
“For credit qualifying streamline refinances, the lender must:
–verify the borrowers income and credit report
–compute the debt-to-income ratios, and
–determine that the borrower will continue to make mortgage payments.”
As you can see, the process for credit qualifying is very similar to the original FHA loan application, and borrowers should take sufficient time to prepare for the new loan just as they did for the original mortgage.
Do you have questions about FHA mortgages or refinance loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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