Homeowners who hold a current FHA mortgage may be able to take advantage of the government-insured low-cost refinancing program. If today’s lower interest rates have you considering a refinance, this simplified, streamlined option for FHA borrowers could be a great idea.
What is an FHA Streamline Refinance?
The Federal Housing Administration (FHA) insures select mortgages to help borrowers access affordable home financing. Through FHA loans, home buyers can usually get a competitive interest rate with less-than-perfect credit and a low down payment. When FHA mortgage borrowers decide to refinance, they can use the FHA Streamline Refinance program to lock in a lower rate, thereby saving them money throughout the life of their loan, as well as potentially saving money month-to-month.
What Makes it Streamlined?
With a typical refinance, borrowers are usually required to provide documentation and follow multiple steps in the process–almost like applying for a first mortgage. With a streamline refinance, the borrower has less paperwork to handle and the lender has fewer underwriting tasks to perform. This makes the entire process go significantly faster.
FHA Streamline Refinance Requirements
Specific loan requirements can vary from lender to lender; however, these are the basic borrowing guidelines for FHA Streamline Refinance applicants:
- The borrower must be refinancing an existing FHA mortgage. If you have a conventional mortgage, you will not be able to use the FHA Streamline program to refinance into an FHA loan.
- The borrower must be up to date (not delinquent) on their mortgage payments.
- The FHA Streamline Refinance must provide a financial benefit to the borrower, either by reducing the loan’s interest rate and/or by changing the loan’s terms.
- The refinanced mortgage cannot exceed the amount of the current mortgage balance.
- Borrowers cannot use the FHA Streamline Refinance program to access cash from equity (as in a cash out refinance.)
Pros & Cons of FHA Streamline Refinancing
For FHA borrowers who are current on their mortgages and are interested in lowering their mortgage rate, the FHA Streamline Refinance could be an excellent option. However, it may not make sense for everyone. The benefits of choosing an FHA Streamline Refinance loan include faster processing, less documentation, low closing costs and the ability to save money on interest throughout the life of the loan. That being said, FHA Streamline Refinancing does not come without some upfront costs.
The biggest drawbacks to choosing an FHA Streamline Refinance has to do with insurance premiums. If you have an FHA loan, you already know that you are required to pay both an annual and an upfront mortgage insurance premium. If you refinance, you’ll have to continue to make these payments; however, their cost could significantly increase, depending on when you got your original loan.
If you got your FHA mortgage before June 1, 2009, you paid an upfront premium of 0.01% of the loan value and an annual amount of .55% of what you initially borrowed. After June 1, 2009 the amounts increased to 1.75% for the upfront premium and between 0.45% and 1.35% for the annual premium. Refinancing a pre-June 1, 2009 mortgage could wind up costing you more in mortgage insurance premiums, which will eat into the overall savings. This is why it’s important to crunch the numbers to see if a refinance is really worth the cost. For instance, if you won’t be living in your home long enough to break even and actually start enjoying the real savings, it’s not worth the expense to refinance.
If you’re interested in learning more about FHA Streamline Refinancing, connect with a lender serving your area. Luxury Mortgage is pleased to offer competitive pricing and excellent service to FHA borrowers throughout much of the United States. Contact us today for a free rate quote and additional information.
Call us today: (888) 379-0303
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Stamford, CT 06901