June 19, 2017
FHA Streamline Refinance rules state that in order for the loan to be approved, the lender must determine that the refinance loan has some type of actual benefit to the borrower. What are the benefits of FHA Streamline refi loans and which one is right for you?
FHA Refinance Basics
FHA refinancing is usually for either existing FHA mortgages or non-FHA mortgages. However, for FHA Streamline Refinance loan transactions, only existing FHA mortgage loans are allowed. FHA refinancing requires a new credit check and appraisal for any transaction that features cash back to the borrower above and beyond refunds of money paid up front for items that wind up being financed into the mortgage loan.
However, FHA Streamline loans don’t allow money back to the borrower, so there’s no FHA-required credit check or appraisal. Your lender may require one anyway, but this will depend on the rules of your financial institution. FHA Streamline loans generally require the borrower to have made at least six mortgage payments at the time of FHA loan case number assignment.
FHA Streamline Refinance Loan Benefits
FHA Streamline loans require a benefit to the borrower in the form of a lower monthly payment, a lower interest rate, or the transition from an adjustable rate mortgage into a fixed rate loan.
Borrowers and lenders cannot use a shorter mortgage term as the tangible benefit unless certain FHA requirements are met including a requirement that “the combined principal, interest and MIP payment of the new Mortgage does not exceed the combined principal, interest and MIP of the refinanced Mortgage by more than $50” according to HUD 4000.1.
FHA loan rules provide the lender with tables showing the requirements for interest rate benefits to the borrower. For example, for FHA Streamline refi loans on existing fixed-rate mortgages, the new rate must be “At least 0.5 percentage points below the prior Combined Rate”.
For FHA adjustable rate mortgages-to-fixed rate Streamline loans, the amount required of the new interest rate will vary depending on how soon the next scheduled interest rate adjustment occurs, but in general, FHA loan rules will require one to two percentage points below the existing rate. Speak with a loan officer to determine what may apply in your specific circumstances.
No Credit Check FHA Streamline Refinancing
FHA loan rules in HUD 4000.1 permit the lender to process an FHA Streamline Refinancing transaction without a credit check provided the following requirement is met as described in HUD 4000.1:
“A Borrower is eligible for a Streamline Refinance without credit qualification if all Borrowers on the existing Mortgage remain as Borrowers on the new Mortgage. Mortgages that have been assumed are eligible provided the previous Borrower was released from liability.”
Certain exceptions for divorce or the death of a borrower may apply-speak to your loan officer to determine what may be permitted in your circumstances.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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