FHA streamline mortgages give homeowners who already have a mortgage that’s insured by the Federal Housing Administration an expedited way to refinance into another FHA-insured home loan. For those who can save money by refinancing and qualify, this is usually the fastest and most affordable way to refinance.
Homeowners Must Meet Five Specific Criteria to Qualify
To qualify for an FHA streamline refinance, homeowners must be able to meet five specific criteria. The criteria aren’t necessarily difficult to meet, but there’s no margin for variance with them. Homeowners must:
- Already have their property financed through an FHA-insured mortgage
- Have waited at least six months since their current FHA mortgage was issued
- Be current on their FHA mortgage (see below)
- Be able to cover the closing costs of the refinance (see below)
- See a tangible financial benefit from the refinance (see below)
Private lenders who actually underwrite FHA mortgages and streamline refinances may have additional requirements, such as minimum credit scores.
FHA Streamline Refinances Are Intended to Help Homeowners Save
The purpose of the FHA Streamline refinance program is to help homeowners take advantage of any savings that refinancing will offer them, and it’s this purpose that explains the latter three requirements listed above.
First, homeowners must be current on their existing FHA mortgage because the program is not intended to alleviate financial pressure. The Federal Housing Authority has many other programs to help homeowners who are struggling to pay or are upside-down on an FHA-insured mortgage.
Second, homeowners have to be able to cover the closing costs of refinancing so that they can realize the maximum possible financial benefit from the refinance. Rolling closing costs into the new mortgage (as some refinances do) simply spreads the cost of refinancing out over the duration of the new home loan.
Third, homeowners have to see a “net tangible benefit.” Exactly what qualifies as a net tangible benefit depends on the type of loan, interest rate, loan terms and other factors, but the refinance ultimately must provide a financial savings.
Additionally, homeowners aren’t able to take out more than $500 of their equity through this type of refinance since the main purpose is to save money. Homeowners who want to refinance so that they can liquidate some of the equity in their home should consider other refinancing options.
FHA Streamline Mortgages Save Homeowners Paperwork, Time and Money at Closing
The real benefit of the FHA streamlined mortgage program (as opposed to other refinance options) lies in how this type of refinance is done. Specifically, homeowners don’t have to provide income verification, an appraisal, or other documents to complete the refinance.
Not needing to submit this information reduces the paperwork required and saves homeowners time. It also lowers the cost of refinancing, as homeowners don’t have to pay for an assessment or other documents that aren’t required.
Investment Properties Can Be Refinanced With an FHA Streamline Mortgage
Most homes that are financed through an FHA-insured mortgage are borrowers’ primary residences, for this is a requirement of the initial FHA mortgage program. In a few cases, however, former primary residences become investment properties but remain on an FHA mortgage.
When this happens, it’s often possible to refinance an investment property that has an existing FHA mortgage through the FHA Streamline program. Property owners must meet all criteria mentioned above, and the refinance must be done without an additional assessment (since the program is largely designed to avoid this requirement).
FHA Streamline Refinance Makes Sense for Qualifying Homeowners
If you meet all of the FHA streamline criteria and can save money by refinancing your home loan, this program likely makes sense. Check to make sure you qualify for an FHA streamline refinance and see what sorts of terms you could get on a new home loan.
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