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What Exactly Is an FHA Streamline Loan? (And How To Take Advantage)

Quick Summary

  • To qualify for an FHA streamline refinance loan, you must already have an FHA loan.
  • If you have had your mortgage for at least 6 months, you may be eligible for an FHA streamline refinance.
  • Obtaining an FHA streamline does not necessitate a home appraisal, as well as income and credit verification.

An FHA streamline refinance loan is a great way to lower your monthly mortgage payments in a quick and easy process. If you currently have an FHA loan that is at least 180 days old and refinancing can reduce your term or rate, an FHA streamline is the simplest and most efficient option.

What exactly is an FHA Streamline Loan?

The FHA streamline loan is a type of refinancing designed specifically for people who already have FHA loans. Refinancing means refinancing your existing loan with a new one in order to reduce your term or rate and thus lower your monthly mortgage payments.

Because there are fewer documents and conditions to complete, this loan process is simpler than many others. Most notably, you may not need to obtain an appraisal, which is one of the most difficult aspects of refinancing. Of course, it is critical to understand whether an FHA streamline is right for you and what requirements are required to qualify for one. This article will assist you in doing so.

The FHA streamline loan replaces your existing FHA loan with a new FHA loan. Because there are fewer requirements, it is much easier than other types of refinancing. This is because the FHA already regards you as a reliable borrower since you already qualified the first time.

Another way of refinancing under the FHA is the 203(k) refinance or streamline loan. It enables you to finance both the house and the costs of rehabilitation, combining them into a single monthly mortgage payment. Furthermore, you do not need to have an existing FHA loan for this type.

There are two choices:

Refinance with a 203(k) limit

This is only for minor enhancements. It has a cap of $35,000 and no minimum cost requirement.

203(k) standard refinance

This category is for major or structural changes. It has no upper limit but a $5,000 minimum cost requirement.

Streamline Refinance FHA Loan Eligibility

Having an active FHA loan isn’t the only prerequisite, though. However, familiarity with the two distinct types of FHA streamline refinance loans is necessary before we can go into the primary standards that must be met.

Non-Credit Eligible

This is the quickest and most convenient choice. You are not required to undergo a credit or income verification. The disadvantage is that you may not receive the lowest rates, and you must have a valid reason to remove a borrower from the mortgage.

Credit Eligible

Lenders will want both income verification and an acceptable credit score for this type of loan. In addition, they will calculate your DTI (debt-to-income) ratio. It will take longer, but you will be eligible for reduced mortgage interest rates and will be able to remove a borrower from the title for reasons other than divorce, legal separation, or death.

Regardless of the type of streamline loan you select, these essential standards must be met:

  • On-time payments. If your mortgage is older than one year, you are only allowed one 30-day late payment. If your mortgage is less than a year old, you must have made all payments on schedule.
  • The property must be older in age. You must have owned the property for a minimum of six months or 180 days.
  • Net tangible benefit. Additionally, the FHA mandates that you profit from this refinancing. They will want to see that your new total mortgage payment is at least 5 percent less than your previous payment.

What Are the Current FHA Streamline Mortgage Interest Rates?

To get the most up to date FHA Streamline loan rates for November 26, 2022, you can click here to get a free quote.

How Can I Streamline My FHA Loan?

Do you think you can pay the minimum on your FHA loan and meet the other requirements and downpayment rate of 3.5%? If yes, the next step is to find an approved FHA lender in your area and prepare your documentation. The paperwork required is considerably fewer compared to other mortgages. It includes:

  • Loan application
  • Current mortgage statement showing a six-month payment history
  • Two months’ worth of bank statements to prove you can pay closing costs out-of-pocket
  • Utility bills proving that the home is used as a primary residence

Of course, if you opt for a credit qualifying streamline finance, additional documentation such as proof of employment and credit verification is needed.

Should I Streamline My FHA Mortgage?

When it comes down to it, getting an FHA streamline has both pros and cons that can make or break your decision. In the end, your choice will depend on what you want to get out of it. In the table below, we list the most important pros and cons.

Does an FHA Streamline Make Sense For You?

If you already have an FHA loan and want to lower your monthly mortgage payment, you can get an FHA streamline refinance loan. But does it make sense right now for you? Since interest rates are going up, it’s best to do the math to see if you will get a big net benefit from it.

Also, you can’t get cash out of your loan when you do an FHA streamline refinance. If you wanted to do that, an FHA cash-out refinance might be an option for you. Also, you may or may not be able to get a refund on your UFMIP, you will still be continuing to pay MIPs throughout your new term. Refinancing to a conventional loan may be the way to go to get rid of these monthly insurance payments.

FAQs

Should I Streamline or Refinance?

It depends on your goals. Compared to other refinancing options, the FHA streamline is faster and easier. However, it also has some downsides, such as the rule that you can’t get cash out and having to pay your MIP every month.

How Low Does Your Credit Need to Be for an FHA Refinance?

The credit score requirements for an FHA refinance, the requirements are the same as for a regular FHA loan. The lowest credit score you can have is 500, but most lenders will want to see a score of 580 or higher to know that you can handle your money well. [su spacer]