Refinancing can be a great option for homeowners seeking to lock in today's historically low interest rates. The process – collecting documentation, arranging a home appraisal – can be both tedious and time consuming. Fortunately, many borrowers are eligible to take advantage of the FHA Streamline Refinance, which reduces much of the work involved in the process.
FHA Streamline Refinance – More Bang for Your Buck
The FHA Streamline Refinance is a special mortgage product reserved for current FHA-insured borrowers. The program allows homeowners to bypass many of the traditional underwriting requirements. This means: no new documentation and no new home appraisal. This is particularly good news for underwater homeowners, who may owe more on their homes than what they are currently worth.
Best of all, applying is quick and easy. All that's needed to qualify is:
- An FHA-insured mortgage
- No delinquent payments in loan payment history for the past 12 months
- A record showing you have not refinanced within the past 210 days
In addition, applicants must demonstrate that the FHA Streamline Refinance will result in a net tangible benefit to them. The FHA and your lender want to ensure that the refinance will help you save a significant amount of money. They don't want you to lose money or barely break even. As a result, the FHA states that a borrower's monthly mortgage payment must decrease by at least 5%, or a borrower must refinance from an adjustable to a fixed rate loan. Since the emphasis of the program is improving your financial position on your home loan, you cannot take cash out of your home equity through the FHA Streamline Refinance.
The Impact of Mortgage Insurance Premium – Some Dates to Consider
Before you commit to an FHA Streamline Finance, however, note the date when you initially closed on your current mortgage. This can greatly impact the cost of your mortgage insurance premium (MIP) – and affect how much you'll actually save by refinancing.
As of this past June, the FHA introduced a new initiative: if you are refinancing an FHA loan taken out before June 1, 2009, your annual mortgage insurance premium will be 0.55% of your given loan amount. If you are refinancing an FHA loan taken out after June 1, 2009, your annual mortgage insurance premium will be 1.25% of your given loan amount.
For example, let's say you took out a $100,000 mortgage prior to June 1, 2009. Your annual mortgage insurance premium would be $550 a year. But, if you took out a $100,000 mortgage after June 1, 2009, your annual mortgage would be $1,250 a year. That's a $700 difference!
So, make sure to review the day on which your current mortgage closed to determine if you'll qualify for the lower MIP rate.
A Streamline Recap
An FHA Streamline Refinance can be a great option for FHA-insured homeowners. With minimal requirements, this program allows borrowers to avoid the hassles of a typical refinance. Most importantly, the FHA Streamline Refinance enables homeowners to quickly and easily secure better interest rates and lower those monthly payments.*
To learn more about the FHA Streamline Refinance or to find lenders offering this program, check out the HUD lender list.
If you meet these guidelines, you can contact your current mortgage lender to inquire about a streamline refinance. You can also contact other mortgage lenders to compare rates and fees. Different lenders have different loan requirements, so even if one lender turns you down, another may be willing to work with you.
* By refinancing your existing loan, your total finance charges may be higher over the life of the loan.