Refinancing can be overwhelming, after all there is a large amount of paperwork and verification that is required in order to qualify. That is not always the case, however. If you already have an existing
FHA insured mortgage, you might be lucky enough to be able to take advantage of the FHA Streamline Refinance. This simple program makes it very easy to refinance with very little verification. As with any other type of loan, there are certain requirements that you must meet, but they are not too difficult for homeowners to meet.
The Regulation Differences
What sets an FHA Streamline Refinance apart from a traditional refinance? What stands out the most is the lack of need for a variety of verifications. For instance, there is no requirement of verification of the following:
- Employment
- Income
- Credit Score
- Appraisal
This might seem like a strange concept to allow financing for a home without verifying that the borrower is employed, making the income that he claims, has good credit or determining that the value of his house within the limits of the loan. The FHA offers these easy refinances in order to help current customers take advantage of today’s lower rates without having to go through the verification process again. Their line of thinking is that by helping customers lower their monthly payment, the FHA is lowering their own risk to have to cover defaulted mortgages.
The Real Qualification Requirements
Of course, no refinance can occur without some restrictions or requirements in place. That being said, your mortgage history plays a vital role in the approval process. Because the FHA is trying to lower their risk of defaulted loans, they pay close attention to your mortgage history. More than one late mortgage payment in the last twelve months will deem you ineligible for the Streamline Refinance. In addition, a certain amount of time must have passed since your last loan closing. That length of time is 210 days and in addition, you must have made at least 6 mortgage payments within that time in order to be eligible.
Another large requirement is showcasing the real need to refinance the loan. You cannot refinance just because rates looked lower or because you want to take cash out of the equity that you have built up over time. Instead, you need to show a benefit, such as lowering your payment by as much as 5 percent per month or obtaining a less risky loan, such as a fixed loan over an adjustable loan. Transferring from an ARM loan to a fixed rate loan is a benefit not only to you as the borrower, but also to the FHA as you are less likely to become delinquent or default on your loan with a fixed rate loan over an adjustable loan.
As you go through the Streamline Refinance Program, keep in mind that any closing costs that incur as a result of the new loan must be paid in cash at the closing. Unlike when you purchased the home, you will be unable to roll those costs into your loan. This would only serve to increase your principal loan amount and diminish the benefit of refinancing your loan to decrease the risk of default. There are a few options when it comes to closing costs, however; most often borrowers pay them at closing, but another option is for the lender to give a credit for the costs at closing.
The FHA Streamline Refinance is a great way to take advantage of the savings that today’s lower interest rates may offer you. Before you jump into a refinance, make sure that you are aware of the entire picture, including exactly how much cash you will need to bring to the closing in order to cover the closing costs as well as what your tangible benefit is for obtaining a refinance. In the end, most borrowers end up saving money and reducing their risk with the FHA in the long run.
Find out for free today what you qualify for.
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