The FHA Streamline Refinance loan offers quite the array of benefits that may not only make the difference as to whether your refinance loan closes; it could make the loan process much simpler and less stressful. Here are ten answers to questions about this incredible program from the Federal Housing Authority, in no particular order.
10. Do I Need an Appraisal?
In many cases, they aren't needed. With the FHA Streamline, there's no need for a 1004 URAR (Uniform Residential Appraisal Report) or any form of physical appraisal report on select properties. The Federal Housing Authority has granted lenders with the authority to use a digital report of the home's estimated value. However, this does come with a string: if you elect to go without an appraisal, you will need to pay your closing costs out of pocket.
9. How Much Can I Borrow?
If you find yourself in a situation where your home is not worth what it was when you took out your last loan, the FHA Streamline Refinance might be a good option for you. The Federal Housing Authority allows you to borrow an unlimited LTV (loan to value) against your home. That being said, there has to be a reason for your loan in the sense that it can't be to fix it up or pay off other debts. What's the benefit then? Well, if you want to take advantage of the reduced MIP (mortgage interest premium) announced for 2015, then this would be an excellent way to complete your goal.
8. What Credit Score Do I Need?
There is no minimum credit score (sort-of). This one may sound too far-fetched to some and indeed, the idea of achieving an FHA loan without a credit check is a bit of a stretch for most to wrap their heads around. The bottom line here is this: the Federal Housing Authority doesn't have a credit score requirement, but some lenders may have what's called an "overlay" that sits on top of the insured loans. The Federal Housing Authority does not make the loans; they just insure them for the lending institutions. Therefore, the institutions themselves may, and most do, add an overlay to the program to suit their level of comfort in assessing the risk of your loan. It's advised that you check with your lender of choice before pursuing the FHA Streamline Refinance.
7. Is Cash Back Allowed?
There is no cash allowed on this refinance loan other than any rollover from the title company over-collecting, but even that is limited to $500. So to be clear, no cash is allowed, and no money other than closing costs and mortgage interest can be collected. If you've elected the "no appraisal" option, then the mortgage interest is all that may be included.
6. How much is needed in Cash Reserves?
Two months worth of bank statements that show that you have enough money to cover any out-of-pocket closing costs.
5. How Soon Can I Refinance?
The rule here is 210 days from your last closing date and six payments made to your current FHA loan. Remember, you have to be in an FHA loan to do the FHA Streamline loan.
4. What are the acceptable reasons allowed for the FHA Streamline Refinance?
In 2007, the H.R. 3915, otherwise known as the Mortgage Reform and Anti-Predatory Lending Act was passed which requires all residential mortgage loans to have an NTB (net tangible benefit). This means different things to different loans. To the FHA Streamline Refinance, it means that you must have a 5% reduction to the P&I (principal and interest) of the mortgage payment plus the MIP (mortgage insurance premium).
3. What if my income is challenged at the moment?
Not to worry here as the FHA Streamline Refinance does not require you to have a job, income or a low DTI (debt-to-income) ratio.
2. How much is my mortgage insurance on this loan?
There are two things to remember with your FHA Streamline Refinance. Mortgage Reports state that you will have an upfront mortgage insurance payment paid at closing, and an additional annual payment, usually paid in 12 equal installments and escrowed with your mortgage payment. You're probably used to this already if you're currently in an FHA loan.
1. What if my home isn't in good shape?
If you're not required to provide an appraisal, then this is irrelevant. The extensive requirements for home conditions are well-known to FHA loan recipients and lenders alike. So, for some, the FHA Streamline Refinance may be your best bet. However, if you want cash to repair your home, the FHA 203K might be worth looking into. Then you could roll your 203k into an FHA Streamline Refinance upon completion. In closing, if you want a fast closing and have some challenges to your credit, income, value of your home or condition of your home, the FHA Streamline Refinance might be your best choice. Even if you meet the requirements of a traditional FHA but don't want to deal with the hassles of providing chapters of paperwork, financial records and an appraisal, this might still be worth asking about when you speak with your lender or broker.