The FHA streamline refinance allows borrowers to reduce their rate with no pay stubs, no W2s, and no appraisal. But is an FHA streamline possible while simultaneously removing a borrower from the loan?
For instance, what if you had gone through a divorce since you purchased your home. Or, you bought a home with a friend or relative who now wants to be removed from the loan. Worse yet, your spouse passed away recently.
The short answer is yes, you can remove a borrower while refinancing with an FHA streamline. However, you’ll need to meet some guidelines to make it happen.
FHA Streamline Refinance Borrower Removal
There are two types of FHA streamline refinances: those that require re-qualification of income, and those that do not.
A standard FHA streamline in which no borrowers are removed does not require the applicant to prove current income. However, that’s not always the case when a borrower is removed.
Situations In Which Income Re-Qualification is Required
The household income can change when a borrower is removed. The remaining borrower must re-qualify if he or she has not made payments alone for at least six months. More specific circumstances that require income re-qualification are as follows.
- When removal of the borrower is considered a home sale. Some lenders require mortgage notes that state if a borrower is removed, the loan must be paid off. In this case, the remaining borrower must prove income.
- When the removal of the borrower is not related to divorce, legal separation, or death.
- You assumed the FHA loan less than six months ago.
- You otherwise acquired the home and FHA loan less than six months ago, but it was not considered a sale. This happens in cases of divorce or death of a co-borrower.
In these cases, removing a borrower from the loan and title are allowed, but the remaining borrower must prove they can still afford the payment.
No Income Verification Borrower Removal
You can remove a borrower without submitting income documentation to re-qualify. In general, you must remove the borrower from the title and prove you have made at least six payments from your own funds, without the help of the removed borrower.
- You assumed the home and FHA loan more than six months ago, and can document all payments from your own funds.
- Your co-borrower was removed from title due to divorce, legal separation, or death.
- You can document the situation with a divorce decree or similar document legally awarding the remaining borrower with the home and responsibility for the payment.
If you make at least six mortgage payments on your own, you will have an easier qualification process when removing a c0-borrower with the FHA streamline refinance.
FHA Streamline Advantages
If you have an FHA loan, an FHA streamline is the quickest way to take advantage of today’s low rates. Even if you recently removed a borrower from title, it’s still very possible you will qualify to drop your rate and payment.