The FHA streamline program is a refinance option with relaxed credit and underwriting guidelines. Current FHA homeowners can lower their rate and payment without nearly as much paperwork as a traditional refinance requires.
While the program is simple, it does adhere to a set of rules and guidelines about which borrowers often have questions. Find the answers to your FHA streamline questions below.
How Much Income Do I Need?
The FHA streamline loan requires no proof of income like W2s or tax returns. Most other types of loan require the lender must determine the borrower’s ability to afford the new monthly payments. The FHA streamline refinance eliminates this requirement.
That being said, some lenders impose additional rules to the program. They may ask for a copy of your current paycheck and/or may call your employer to verify your employment. Still, the program remains much easier than refinances that require full documentation.
What is the FHA Streamline Minimum Credit Score?
FHA does not have a minimum credit score requirement since it does not require a credit report for FHA streamlines. However, most lenders will require a credit report and a score of at least 620. Some lenders could allow lower scores, so shop around.
Will I Need An Appraisal? What If I Am Underwater?
FHA streamline loans do not require an appraisal. This saves the borrower $350-$550 or more. The lender uses the original purchase price of the home as the current value. This guideline helps homeowners whose home has lost value. Even homes that are “underwater” – having negative equity – are eligible.
You can order an appraisal on an FHA streamline. Borrowers opt for an appraisal when they have enough equity and want to roll closing costs into the new loan. See “Can I Include Closing Costs Into My New FHA Streamline Loan?”
How Do I Take Advantage of Recent FHA MIP Reductions?
FHA reduced its monthly mortgage insurance premiums (MIP) by 0.50% for all new FHA loans as of January 26, 2015. The reduction will save FHA borrowers about $40 per month for every $100,000 borrowed. Current FHA borrowers must refinance with an FHA streamline refinance or other FHA refinance to lower their MIP.
Some homeowners can refinance out of FHA into a conventional loan to eliminate mortgage insurance altogether.
Can I Include Closing Costs Into My New FHA Streamline Loan?
Current FHA requirements say you may not roll closing costs into the new loan. Your maximum loan amount equals your current loan balance plus the FHA upfront mortgage insurance premium (UFMIP), minus your FHA MIP refund.
The good news is that you can often negotiate a zero out-of-pocket FHA streamline by requesting the lender pay your closing costs.
You can also request an appraisal with your FHA streamline. If your home’s current value is high enough, you can request a loan amount up to 97.75% of the current appraised value. Make sure the new loan amount will be enough to cover closing costs before ordering an appraisal.
For example, if your appraised value is $100,000, make sure your existing loan balance plus all closing costs, minus MIP refund, is no more than $97,750.
Can I Get Cash Out with an FHA Streamline?
No. The FHA streamline refinance allows no cash out at closing. The loan amount is limited to the outstanding loan balance plus a new upfront mortgage insurance premium, or UFMIP. Even if the lender provides you with enough credit to cover loan costs, cash out is not allowed.
What is the FHA Streamline Net Tangible Benefit Requirement?
There is no minimum amount that the interest rate must drop. However, the lender must determine a “net tangible benefit” for the borrower. This is defined as a 5% drop in monthly payment. This reduction can come from a lower interest rate, lower monthly mortgage insurance, or a combination of the two.
For instance, if your principle, interest, and mortgage insurance payment is $1000 per month, it must drop to at least $950 to meet the net tangible benefit rule.
There are exceptions to the rule if you are refinancing into or out of an adjustable rate mortgage (ARM) loan. In some cases, you may be able to refinance without the 5% reduction rule. Check complete net tangible benefit rules here.
Do I Have to Live In The Home to Qualify For An FHA Streamline?
FHA streamline refinance loans do not require you to occupy the property, but you must provide evidence that you once did. Sometimes a borrower purchases a home with an FHA loan, but is forced to move out and rent out the property. In these cases, FHA allows you to refinance the home with an FHA streamline, even though you are not living there.
Complete a short questionnaire here to refinance an investment property.
Can I Have Any Late Mortgage Payments?
Your lender will examine recent payment history on the existing FHA loan. There must be no payments paid more than 30 days past the due date during the most recent 90 day period. Additionally, there can be no more than one payment made 30 days past the due date within the previous 12-month period. If you were just days or a couple weeks late on a payment, it most likely did not show up as a late payment on your credit report and you should be fine.
How Soon After My Current FHA Loan Closed Can I Refinance?
As a lender reviews the application, regardless of any tangible net benefit to the borrower, the existing FHA loan must show a minimum of six payments made. In addition, at least 210 days must pass between the closing date of the new refinance and most recent closing date on the existing mortgage. To put it simply, there is an approximate seven month waiting period between FHA loan closings.
Can I borrow funds for home improvements with the FHA streamline loan?
No, the FHA loan does not allow additional funds to be included with the new loan amount and only the outstanding principal balance and new upfront mortgage insurance premium (UFMIP) can be included with the new loan.
What is UFMIP and Do I have to Pay it in Cash?
UFMIP is the acronym for Upfront Mortgage Insurance Premium. It is the fee that FHA charges on just about every FHA loan to defray the costs of the program. As of April 2013, the fee is typically 1.75% of the full loan amount. So if you open a $100,000 mortgage, your final FHA loan amount will be $101,750.
For FHA streamlines, you can wrap this fee into the new loan and do not have to pay it out of pocket. If you wish, you have the option to pay it out of pocket, which reduces your loan amount. Most FHA borrowers finance it into the new loan.
I won’t be able to make my payment this month until the 20th. Is that considered late?
For purposes of FHA underwriting, no. FHA prohibits more than one late payment within the previous 12 months and any late payments in the last 90 days. However, FHA considers a late payment to be more than 30 days past the due date. If you make your payment on the 15th, 20th, or 25th of the month, the payment is not considered late enough to disqualify you from the program, unless of course your lender didn’t receive the payment until 30 days after the due date.
However, keep in mind that if you make your payment past the 15th, you are usually subject to late fees. To make sure you avoid extra costs, you should try to make your payment each month as close to the 1st as possible.
If I can’t roll my closing costs into the loan, how can I pay for them?
Ask your lender for a credit for closing costs. The lender can typically credit all or part of your closing costs on an FHA streamline. Click here for a complete strategy to request a zero out of pocket FHA refinance.
Can I refinance from a 30 year loan to a 15 year fixed rate loan?
A loan term reduction is not allowed using an FHA streamline. Those looking to reduce their FHA loan term should look into refinancing the FHA loan with a conventional mortgage, or with a new non-streamline FHA loan that will require an appraisal and income documentation.
Can I refinance my hybrid ARM loan even though it’s still in its fixed period?
Yes, an FHA hybrid ARM such as a 3/1 or 5/1 can be refinanced into a 30-year fixed loan whether in its initial fixed period or adjustable period. Different net tangible benefit rules apply in each instance.
I’m underwater on my home and I have a conventional mortgage. Can I use the FHA streamline loan to reduce my rate?
Unfortunately, no. The FHA streamline loan program is only for FHA-to-FHA transactions. If you have a conventional loan and want to refinance even though your mortgage balance may be greater than your current value, you may be eligible for the Home Affordable Refinance Program, or HARP.
Apply for an FHA Streamline Refinance here.
Take advantage of today’s low rates and reduced FHA mortgage insurance premiums.