FHA Streamline Refinance Loans

Federal Housing Administration (FHA) loans are insured by the US government so that lenders do not carry all of the risk. The program has been in effect since 1934, and was originally created to help residents become homeowners since most were renters, and also, to jump-start the dead housing industry. What differentiates these kinds of mortgages from others is the fact that little or no down payment is required. Further, the insurance is paid by the homeowner as part of their mortgage payments, but typically stops when the owner builds up at least twenty-two percent equity in the home.

Since the 1980s, the FHA has allowed homeowners to seek mortgage refinancing to reduce their monthly payments, and to do so without the cumbersome paperwork of other loans. This process is called FHA Streamline Refinance Loans. To quality for the program:

  • Your existing mortgage must already be insured by the FHA.
  • Your mortgage must be in good standing and up-to-date in payments.
  • The end result, when refinancing is completed, is that your monthly payments are lower than before.
  • Cash-outs are not permitted.

Often, homeowners are confused by the meaning of the streamline refinance process. They believe that lenders cannot charge fees on the loans, but this is not accurate. While lenders may offer programs with reduced fees, they are not obligated to do so by the rules of the program. Specifically, the program is about providing less documentation than with other loans. Basically, most lenders offer one of the following three options when completing a streamline refinance loan.

  • They offer a package which includes no fees upfront, but the interest rate is higher so the closing costs are paid from the higher interest earned.
  • Closing costs are financed as part of the new mortgage, as long as the total mortgage value is below the home's worth. The homeowner must have equity.
  • Borrowers pay the closing costs from their own cash.

Another factor which is different with FHA streamline refinance loans is that appraisals are not always necessary. If homeowners refinance at an amount equal to or less than the original mortgage, they are not required to order an appraisal. Lastly, investment properties can qualify for refinancing, too, in some circumstances.

Other important points for you to know before seeking refinancing are:

  • Your existing mortgage must be at least six months old, and you must have made at least six payments.
  • You must use an FHA lender, but that does not mean you have to stay with the same lender as your original loan. You have the right to shop around, if another FHA lender approves your application.
  • The FHA does not require you to certify your income nor employment.

Although the FHA program is assistance of sorts, it is not one based on charity. For example, earning more money is not a deterrent to applying for an FHA loan. In fact, the more you earn, the better for your application. On the other side, if you earn too little to cover your monthly payments and other housing costs, such as gas, hydro, and property insurance, then you will not be accepted for a loan. The same is true of FHA streamline refinance loans. You must make adequate earnings to cover your revised mortgage payments.