July 20, 2017
What is an FHA streamline refinance loan? This type of refinance loan option is intended for borrowers who have existing FHA mortgages and want to refinance into a lower interest rate or monthly payment. Streamline refinance loans allow the borrower to apply with no FHA-required appraisal or credit check. Your lender may require one or both, but the FHA allows the option to apply without such requirements.
That’s a unique feature-FHA streamline refi loans allow the lender to use the borrower’s existing credit and appraisal data to approve the loan. This type of borrowing can be a major advantage for the home owner who has financial goals that include lower monthly payments.
How Streamline Refinance Loans Work
The FHA loan handbook, HUD 4000.1, describes streamline refinancing as follows:
“Streamline Refinance refers to the refinance of an existing FHA-insured Mortgage requiring limited Borrower credit documentation and underwriting. There are two different streamline options available.”
Those two options include a credit-qualifying FHA Streamline, which HUD 4000.1 describes as requiring the lender to perform the usual home loan-type credit check. “The Mortgagee must perform a credit and capacity analysis of the Borrower, but no appraisal is required.”
This credit check may be required by the lender regardless of the circumstances. In some cases, FHA loan rules themselves will require a credit check if add-ons to the mortgage loan increase the borrower’s monthly payments above an acceptable threshold.
No-credit check FHA Streamline refinance loans do not require an appraisal, though the same rules apply about add-ons. “No credit check” may become “credit check required” if the lender determines the add-ons raise the monthly mortgage payment too much.
FHA Streamline loans are a way for the borrower to refinance an existing FHA mortgage to get a lower interest rate or lower mortgage payment, but they can also be used to refinance out of an adjustable rate mortgage into a fixed rate loan. FHA loan rules actually require there to be a tangible benefit for the borrower in the form of (but not limited to) one of the above and the move into a fixed rate is definitely considered a tangible benefit.
Streamline Refinancing can only be used for existing FHA mortgages. Borrowers who want to refi non-FHA loans will need to explore options such as FHA cash-out or FHA no cash out refinancing, both of which will require a new appraisal and credit check. Appraisals are needed for these loans because they require a dollar amount for the current fair market value of the home.
FHA Streamline refinancing is not dependent on and updated appraisal because the loan is intended not to provide cash for equity or a loan based on equity, but rather to provide those tangible benefits to the borrower as mentioned above.
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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