Pros Of An FHA Streamline Refinance
For homeowners with an FHA loan, an FHA Streamline Refinance is often the best type of refinance for their situation. Here are some reasons you might want to consider an FHA Streamline.
You Can Lower Your Monthly Payment
FHA Streamlines are a fast way to lower your monthly mortgage payment by locking in a lower interest rate. However, the FHA has strict guidelines regarding how you achieve the lower payment.
For example, you can’t add more than 12 years to your loan term. If you do extend your loan term to lower your payment, you must also reduce your interest rate. The exception is if you’re going from an ARM to a fixed-rate mortgage.
You Can Refinance Even If You Owe More Than Your Home Is Worth
Unlike many mortgage refi options, an FHA Streamline allows you to refinance even if you have an underwater mortgage, meaning you owe more on your home than it’s worth.
The loan amount for your FHA Streamline is primarily determined by the outstanding principal balance of your loan – so if your home value has declined, you may still be able to use an FHA Streamline to refinance.
Your Lender May Not Need To Verify Your Income Or Credit Score
The FHA Streamline Refinance comes in two forms. The type you qualify for determines whether your lender will require income verification and a credit check. Let’s take a look at the two Streamline refinancing options.
Credit-Qualifying Streamline Refinance
This type of Streamline refinancing requires you to provide income documentation. It also requires the lender to perform a credit check and calculate your debt-to-income ratio (DTI). If your refinance happens to remove a borrower from the mortgage, you fall into this type of refinance.
Non-Credit Qualifying Streamline Refinance
With this type of refinancing, your lender still checks your credit, but they consider fewer factors within your credit report. For a non-credit qualifying refinance, your lender may not need to verify your income. This makes the approval process faster and easier.
You May Not Need A Home Appraisal
A home appraisal is an unbiased and professional determination of the fair market value of the home. However, FHA Streamlines generally don’t require an appraisal of the home. Instead, the loan amount is determined by what you owe on your existing FHA loan instead of the current home value or loan-to-value ratio (LTV).
You Can Typically Close Sooner
Because you’re not required to provide as much documentation – and because a home appraisal isn’t usually required – the underwriting process is faster. The upshot is that your Streamline Refinance can close even sooner.
