July 17, 2013
FHA Streamline Refinances are designed to lower a borrower’s monthly payments and/or get a lower interest rate. For many borrowers this is a no-appraisal/no new credit application type of loan. But in some cases, a borrower’s payments may actually increase with a streamline refinance loan depending on whether permitted add-ons are included in the loan amount. In cases where the payments increase to 20% or more, there is a credit-qualifying requirement for the new loan.
This requirement is found in the FHA loan rules for Streamline Refinancing loans, which say:
“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.”
FHA loan rules for credit-qualifying FHA Streamline Refinance loans state, “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.”
What kind of evidence? According to HUD 4155.1, Chapter Six Section C, “For credit qualifying streamline refinances, the lender must
• verify the borrower’s income and credit report
• compute the debt-to-income ratios, and
• determine that the borrower will continue to make mortgage payments.”
Speak to a loan officer about FHA streamline loans and whether or not you need a credit-qualifying version of this type of refinancing. Remember, not all FHA streamline loans require a new credit check or appraisal.
Do you have questions about FHA home 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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