What is an FHA Streamline refinance?

FHA Simplified Refinancing is an option for homeowners that is administered by the Federal Housing Administration (FHA). It aims to give consumers an easier way to obtain mortgage refinance from a participating lender. To be eligible, a homeowner must currently have an FHA insured mortgage and cannot be behind on payments.

How an FHA Streamline refinance works

The FHA has allowed simplified refinancing of mortgages it has insured since the 1980s. Lenders and consumers benefit from less paperwork and fewer steps to complete. The goal, as with all refinancing, is to reduce the owner’s monthly interest and principal payment. However, no more than $ 500 in cash can be taken out on the refinanced mortgage.sese

The FHA does not require Evaluation on simplified refinancing. Instead, it uses the owner’s original purchase price. It also may not require a credit report, although the bank that actually lends the money may.

FHA Insured Mortgages are a popular choice for first-time buyers because they often require smaller down payments and lower credit scores than other conventional mortgages. However, these types of mortgages are only offered by FHA approved banks.

When signing the mortgage, the borrower agrees to pay 1.75% of the loan amount as an upfront fee, also called initial mortgage insurance (UFMI), and the annual fee for mortgage insurance premium (PMI) totaling 0.45% to 1.05%.sese

Types of FHA Streamline refinancing

There are two forms of this refinancing available: non-credit eligible and credit eligible. There are some differences in the agency requirements for each type. Borrowers ineligible for credit do not have to re-apply with employment and credit checks. No simplified credit check refinance is available for homeowners who have owned the property for at least six months. Simplified credit qualifying refinancing is required when the new mortgage will increase mortgage payments by 20% or more.sese

Requirements for an FHA Streamline refinance

The biggest requirement for a streamlined FHA refinance is to demonstrate a tangible net benefit. In effect, this means that the homeowner must show the FHA that the refinancing will be to his or her quantifiable financial benefit. This net tangible benefit could be achieved by reducing the term of the mortgage, the interest rate, or both.

So, for example, a homeowner would not meet the requirements for an FHA simplified refinance if the new mortgage reduces the monthly payment only by increasing the total number of payments due. The owner will pay the same amount over time and has not achieved a net financial benefit.