August 18, 2015
FHA refinance options for those who already have FHA mortgages include something know as the FHA Streamline Refinance.
FHA Streamline Refinance loans allow FHA borrowers to apply for a refinance loan designed to lower monthly payments, interest rates (or both), get out of an adjustable rate mortgage, or refinance from one fixed-rate loan to another. Borrowers can also, according to FHA loan rules, refinance from one adjustable rate mortgage to another.
The rules that govern FHA streamline refinance loans are found in HUD 4155.1, Chapter Six, Section B, which begins by explaining that FHA Streamline Refinances:
“–are designed to lower the monthly principal and interest payments on a current FHA-insured mortgage, and
— must involve no cash back to the borrower, except for minor adjustments at closing that are not to exceed $500.”
That second line above is what makes FHA Streamline Refinance Loans much different than FHA Cash-Out Refinance Loans. There are other differences–FHA Streamline loans have no FHA-required appraisal or credit check. The lender always has the option of requiring one, but unlike cash-out refinance loans, if the lender chooses not to require one or both, the application may proceed.
In situations where the lender requires a new appraisal, FHA loan rules are clear that repairs or corrections identified as part of the appraisal process may not necessarily be required unless those corrections meet certain criteria. From Chapter Six:
“FHA does not require repairs to be completed on streamline refinances with appraisals, with the exception of lead-based paint repairs. However, the lender may require completion of repairs as a condition of the loan.”
Again, the lender’s discretion is a key factor in such cases.
FHA Streamline loans, as mentioned above, don’t require a credit check unless the lender wants one. Furthermore, changes in FHA loan rules that were made in 2011 also eliminate the need for employment verification on an FHA Streamline loan.
“Effective with case numbers assigned on or after April 18, 2011, FHA no longer requires lenders to certify employment and income on streamline refinance transactions. As a result, lenders will not have sufficient data to score streamline refinances through the Technology Open to Approved Lenders (TOTAL) Scorecard. The TOTAL Scorecard was never intended tobe used for streamlines and the results are not considered valid.”
There are specific rules for credit-qualifying streamline refinances. We’ll cover those in a separate blog post.
Do you have questions about FHA 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.
Browse by Date: