FHA Streamline Refinance Guidelines and Details

By August 2, 2012
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FHA Streamline Refinance guidelines and details for current homeowners that have an FHA mortgage. The only homeowners that can take advantage of an FHA streamline refinance is homeowners that currently have an FHA loan on their property.

Are you FHA (Federal Housing Administration) Streamline Eligible?

  • 89291778Currently have an FHA Mortgage.
  • Most recent 12 month payment history is on time.
  • Net Tangible Benefit – FHA requires that your payment decrease by at least 5% per month or go from an ARM (adjustable rate mortgage) to a fixed rate mortgage.

There are big advantages when looking into an FHA streamline refinance, one in particular is that there are no appraisals required, which is a huge win for homeowners that currently owe more than the home is worth. Since the FHA currently backs the loan, they are already responsible to the lender if a homeowner were to default on the loan and foreclose. So it is in the best interest of the FHA to refinance a borrower into a lower rate and lower payment, without worrying about the value of the property.

There are no loan to value (LTV) limits on an FHA streamline refinance, unlike the HARP program. Some lenders still put a cap on the LTV limits of a HARP loan, whereas FHA, there are no limits, no matter what lender is chosen. For example, a homeowner could have a mortgage that has a balance of $400,000, but the home is worth $50,000, as long as the FHA backs the loan and it is a benefit to the borrower, then they can refinance with no appraisal needed.

Another big benefit with FHA streamline loans is the mortgage interest rates that come with them are typically lower than a conforming or conventional loan. Right now, an FHA 30 year fixed rate is in the low 3′s and a conforming loan 30 year fixed rate in the mid 3′s.

Some of the benefits relating to the guidelines are there is no income verification. Which is also a big win for homeowners because in these economic times, there are many homeowners that are now working for lower paying jobs than when they originally bought their home. As long as you currently have a job, you can qualify with this guideline.

Credit score is a little different, even though FHA requires a minimum of a 500 credit score, most lenders will only approve a borrower with a 620 or above credit score. Also, when is comes to credit worthiness, a borrower can only be late on a payment one time in the last 12 months and must be current at the time the streamline refinance is complete.

Closing costs may not be rolled into an FHA streamline refinance, the only cost that can be rolled in are the Upfront Mortgage Insurance Premiums. Either the borrower will have to come to close with the remaining closing costs or they will have to take a slightly higher interest rate for a “no closing cost” type refinance.

FHA Mortgage Insurance Requirements

There are two different types of FHA streamline refinances, when it comes to the mortgage insurance requirements. If your current FHA mortgage was written before June 1st, 2009, you may be eligible to refinance your loan with significantly less closing cost.

Normally, when someone refinances an FHA using the streamline program the Upfront MIP (Mortgage Insurance Premium) is 1.75% of the current loan balance and the Annual MIP is anywhere between 1.20% to 1.25% of the original loan amount.

The Cost Associated For Example:

  • $200,000 Loan at 1.75% Upfront MIP and 1.25% Annual MIP
  • 1.75% Upfront MIP equals $3,500
  • 1.25% Annual MIP equals $208.33 a month

But if your FHA mortgage was endorsed prior to June 1st, 2009, the Upfront MIP will be only.01% and the Annual MIP will be just.55% of the current loan amount.

The Cost Associated For Example:

  • $200,000 Loan at.01% Upfront MIP and.55 Annual MIP
  • .01% Upfront MIP equals just $20
  • .55% Annual MIP equals $91.67 a month

That is a savings of $3,480 in closing costs for the Upfront MIP and a savings of $116.66 per month or close to $7000 over 5 years for the Annual MIP.