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FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

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What Homeowners Need to Know About the FHA Streamline Refinance

What Homeowners Need to Know About the FHA Streamline Refinance
As an existing homeowner, you may want to take advantage of falling interest rates by refinancing your current mortgage. For many homeowners, the thought of going through the refinancing process can be tiresome. But an FHA Streamline Refinance could help you avoid the extra work. 

A Faster Way to Refinance 

An FHA Streamline Refinance allows current homeowners to refinance their home loan by skipping over a second appraisal, something that is required by most other refinance options. Since a home appraisal was done at the time of the first mortgage, the FHA allows lenders to skip the second appraisal, saving borrowers both time and money.  

In some cases, with a “non-credit qualifying refinance”, borrowers are also able to skip the income and credit check, which can be a huge relief for those who have changed jobs or seen a dip in their finances. However, in the case of a “credit qualifying refinance,” your lender will go through the qualification process of checking your credit scores, debt-to-income ratios, and income level. This might be done in the instance that a co-borrower is added or taken off the loan. While a little more time consuming, this kind of refinance could also mean a lower interest rate than what you would get with the non-credit qualifying refinance.

FHA Streamline Refinance Guidelines 

The FHA Streamline Refinance is an option available to borrowers with a current FHA mortgage, but there are a few guidelines and requirements that these borrowers need to meet: 
  • You must be current on your FHA home loan: Borrowers need to have a history of on-time mortgage payments. Late payments can count against you, but the FHA makes some exceptions. If you have had your FHA loan for under one year and have not missed payment deadlines by more than 30 days, you are not disqualified from a Streamline Refinance. Keep in mind, however, that most lenders have overlays and can choose to deny an applicant with late payments. 
  • You need to establish a payment history: Eligible borrower need to have made at least six-monthly payments and have had their existing FHA mortgage for a minimum of 210 days before applying for the FHA Streamline Refinance option. In the case of credit-qualifying streamline refinances, exceptions can be made due to life changes, such as divorce or inheritance. 
  • There must be a net tangible benefit: An FHA Streamline Refinance is only approved if there is a benefit to the borrower by refinancing. That could mean a lower interest rate, a shorter loan term, or both. 
Things to Keep in Mind 

An FHA Streamline Refinance comes with a few caveats that borrowers should understand.  

Borrowers need to cover their closing costs: While you can finance the Upfront Mortgage Insurance Premium (UFMIP), the FHA does not allow financing any other closing costs in the price of the loan. Borrowers must get approval from their lender on the source of funds for closing costs.  

Applicants must also remember that this is not a cash-out refinance. The FHA guidelines limit borrowers to no more than $500 in cash with a Streamline Refinance to accommodate changes that might be made at closing. 

With falling interest rates, it is a good idea to investigate all your options when deciding about refinancing. Talk to your loan officer to see if an FHA Streamline Refinance can help lower your monthly payments or shorten your mortgage term. 


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