March 6, 2014
FHA Streamline refinancing loans are for existing FHA mortgages. They feature no FHA-required appraisal in most cases, and there is no FHA-required credit check in most cases.
Some borrowers who want to apply for this type of FHA refinance loan may wonder if the transaction they have in mind is possible under the rules of the FHA loan program. For example, some borrowers want to refinance from a conventional mortgage to an FHA refinance, which is not possible under the FHA Streamline program (but is under FHA Cash-Out Refinancing).
What transactions ARE permitted?
According to HUD 4155.1, Chapter Six, Section C under the heading “Types Of Permissible Streamline Refinances” we find a list of the following:
• no cost refinances
• ARM to ARM refinancing
• ARM to fixed rate refinancing
• fixed rate to ARM refinancing
• GPM to fixed rate refinancing
• GPM to ARM refinancing
• Section 203(k) to Section 203(b) refinancing
• Section 235 to Section 203(b) refinancing
Chapter Six is quick to point out that delinquent mortgages are not eligible for streamline refinancing, nor are investment properties. Also, refinancing loans for the purpose of reducing the term of the loan can’t be done under the FHA Streamline program. Instead, these loans must be done as a no-cash-out refinance loan instead.
No-cost refinances refers to the practice of including closing costs into the loan amount so that no out-of-pocket expenses are passed to the borrower. Those expenses are rolled into the loan amount and may increase the monthly mortgage payment, so borrowers need to run the numbers on no-cost refinances to be sure they understand how the expenses affect the mortgage payment.
FHA loan rules permit adjustable rate mortgages (also known as ARM loans) to be refinanced as ARMs once more. FHA ARM loans can also be refinanced to fixed-rate loans, and vice-versa. Graduated Payment Mortgages can be refinanced to fixed rate loans or ARM loans depending on the borrower’s preference and the willingness of the lender to do so.
Refinancing from ARM to ARM, fixed rate to ARM or any other combination of loans not considered “fixed rate to fixed rate” must meet certain FHA requirements which may include a demonstrable “tangible benefit to the borrower”. Your lender can explain the rules for these areas based on FHA guidelines and the requirements of the financial institution.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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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