The FHA streamline refinance loan program is designed for people who currently have an FHA loan to be able to refinance with reduced paperwork and still get a lower interest rate than they currently may have. Typically, an FHA streamline refinance is easier to qualify for than a regular FHA loan (due to the reduced documentation requirements).
FHA Streamline General Requirements
While FHA has a set of guidelines for the FHA streamline program, at any point in time, any particular lender may have adopted “overlays” is a fancy word for “additional requirements”. For example, FHA may have a minimum credit score of 580 in order to qualify for the program, but a lender may require a minimum of 640 in order for them to fund your loan. That said, here are a list of general requirements for the FHA streamline program:
- No appraisal required
- No income calculations or debt to income calculations required
- No minimum credit scores required
- Reduced lender fees
- Streamlined paperwork process
FHA Streamline Rates
FHA streamline rates are moving all the time – just like every other mortgage rate. Lenders will typically change their rate once per day although sometimes they will announce changes throughout the day. Whatever rate you are first quoted is most likely not the rate that you will get though – the rate you will get is the rate that you agree to when you lock your loan.
UFMIP and MIP Changes for 2012 and Beyond
When you get an FHA loan, you pay up front mortgage insurance premium (UFMIP) that is a lump-sum payment that can be financed into your loan. You also agree to pay monthly MIP which is a monthly mortgage insurance premium.
If your FHA loan was endorsed before May 31, 2009 when doing an FHA streamline, you will not be required to pay the new higher MIP rate, your MIP rate will be .55. If you secured your loan after May 31, 2009, and want to reduce your rate and payment with our FHA Streamline refinance program, you had until April 1st, 2013 before FHA enforces their much higher MIP rate upon you. As of April 1, 2013 now all FHA borrowers are stuck with a higher MIP rate.
The Net Tangible Benefit Test
When doing an FHA streamline, your lender will perform a “net tangible benefit test” which basically means they will make sure that the streamline refinance is something that is benefitting you and not putting you in a worse financial position.
The exact wording for the net tangible benefit test outlined in the HUD guidelines section 4155.1 Chapter 6, Section C, FHA rules state that although certain exceptions are permitted, generally speaking:
“The lender must determine that there is a net tangible benefit to the borrower as a result of the streamline refinance transaction, with or without an appraisal. Net tangible benefit is defined as:
- A 5% reduction to the principal and interest (P&I) of the mortgage payment plus the annual mortgage insurance premium (MIP)
- Refinancing from an Adjustable Rate Mortgage (ARM) to a fixed rate mortgage.”
It goes on to state:
“To qualify as a net tangible benefit, the new mortgage payment (P&I plus MIP) must be at least 5% lower (emphasis ours) than the mortgage payment of the loan being refinanced. This requirement applies when refinancing from
- fixed rate to fixed rate
- ARM to ARM
- Graduated Payment Mortgage (GPM) to ARM
- GPM to fixed rate
- 203(k) to 203(b), and
- 235 to 203(b)”
This means that just a reduction in the loan term is not reason enough alone for a net tangible benefit – so if you have more questions about this, be sure to ask your loan officer.
FHA Streamline Free Quotes
Getting a quote for the FHA streamline from an approved FHA lender is easy and free to get started. FHA approved lenders can easily help you get a free FHA streamline quote that will let you know how much money you could possibly save and whether or not it makes sense to participate in the FHA streamline program.