With home loan interest rates hovering near historic lows, many homeowners are wondering, “What about me? I took out a mortgage some time ago when rates weren’t as attractive as they are now. Is there something I can do?” The answer is, “Absolutely!”
For those of you who aren’t clear, refinancing is simply the act of paying off one loan by getting another. Any homeowner should consider refinancing if they are offered better loan terms or a lower interest rate.
Refinancing an existing mortgage can save you a lot of money over the life of your loan, especially if you have an FHA loan. These government-backed mortgages were developed as an alternative to conventional home financing and are sponsored by the Federal Housing Administration.
If you have an FHA home loan, you’re eligible to do what’s often referred to as a “streamline rate reduction refinance.” At Movement, we haven’t given this loan product a fancy, clever name. We just call it what it is: the FHA 203(b) Streamline Refinance. And it’s way easier than you might think.
Let’s dig in and look at what makes this refinance product one you might want to consider.
What exactly is the FHA Streamline Refinance?
The FHA Streamline Refinance loan is designed to let homeowners who already have an FHA home loan lower their interest rates, reduce their monthly payments, or shorten their loan term without having to go through a home appraisal.
Besides resulting in lower principal and interest payments, under certain circumstances the FHA Streamline Refinance loan may allow you to convert from an adjustable-rate mortgage to a fixed-rate mortgage.
Who is eligible and when should I consider it?
An FHA Streamline Refinance loan is available only to homeowners with a current FHA home loan. You must have a clear title to the property to be eligible and your loan must be at least 6-months old (that’s 210 days). Depending on your unique situation, however, a longer period than six months may sometimes be required.
What if I’ve had late payments?
You must have made at least six on-time monthly payments and be current on your existing FHA loan payments. Specifically, you can not have more than one 30-day late payment in the last year and you can have no late payments over the previous three monthly cycles.
What are the benefits?
The best part of the FHA Streamline Refinance is that it provides a great way to save money without going through a long tedious process. As long as the cash needed to close is less than the actual monthly mortgage payment on your original loan, there’s no appraisal required and no proof of income needed. Essentially, you’re taking out the same mortgage, but you’re getting it at a reduced interest rate. And you’re doing it with less paperwork.
How does it work?
This popular refi program lowers your interest rate and monthly payment by relying on your current FHA home loan. If it’s a mortgage in good standing, you won’t need to get an additional appraisal, bank or asset statements or a full credit report. The underwriters simply use all of the gathered info from your initial FHA loan. The reduced amount of paperwork not only makes this refinance process quicker, but it also makes it cheaper.
So, there are no out of pocket costs?
There are many advantages to the FHA Streamline Refinance program in addition to the monthly payment savings. One of the most popular is that there are fewer out-of-pocket expenses in an FHA Streamline Refinance, that is, unless you owe late charges to your previous lender. There’s no appraisal required, so there are no appraisal costs either. And since there is no credit check, you’re not charged a fee for pulling a credit report.
What about income verification?
Unlike the first mortgage you took out, there’s no income verification for applicants of the FHA Streamline Refinance. If you’ve been paying your mortgage reliably, it’s assumed that you’ll continue to do so — you may even be happier to do so — when you have a lower monthly payment.
There’s no appraisal?
FHA loan rules do not require a new appraisal, but certain lenders might ask for one. Check with your loan officer before signing on the dotted line.
What about closing costs?
There are closing costs, like with any loan, but because you won’t have an appraisal or income verification, closing costs should be less than with other refinance products. It’s interesting to note that the FHA does not allow lenders to include closing costs in the loan amount. For homeowners who are interested in building equity, this is a plus.
What about private mortgage insurance?
If you’re paying private mortgage insurance (PMI) with your current FHA loan, you may find that it may be a smaller amount with an FHA Streamline Refinance than with other refinance products. In fact, the FHA Streamline Refinance is often used to reduce an existing FHA mortgage insurance premium.
Does it affect the length of the loan?
Essentially you’re starting your mortgage over, so just like with any refi, you’ll add some years to your loan term. But you’ll also lower your monthly payments.
Can I get cash out?
An FHA Streamline Refinance can not be used to take cash out of built-up equity. If accessing home equity is your goal, you might be interested in a home equity line of credit (aka HELOC) or a cash-out refinance.
Sounds good! What documents do I need?
The beauty of the FHA Streamline Refinance is that there aren’t as many hoops to jump through. It’s called “streamlined” for a reason: fewer documents to supply to the lender. Here are the basic documents you’ll need.
- A copy of your most recent mortgage statement
- Your FHA loan’s mortgage note, showing your interest rate and loan type
- Employer contact info to verify employment (we don’t have to verify income with an FHA Streamline Refinance)
- Two months of bank statements for the past two months (to prove you have enough funds to cover any out-of-pocket costs)
- Proof of homeowners insurance
That’s a lot to remember!
If you take away anything from this article, let it be these 5 points:
- The FHA Streamline Refinance is a great way to lower the monthly payments on your FHA-backed home loan
- It’s relatively painless due to a simplified refinancing process with less documentation
- There’s no need to verify income
- There is no home appraisal required
- The FHA requires no minimum credit score
It’s easy to get started!
The fastest way to apply online for the FHA Streamline Refinance is with the Movement Mortgage Easy App. This tool will help you get pre-approved quickly by letting you upload all required documents straight into the app. Or, if you prefer, reach out to one of our local loan officers to discuss your options.
