What is the FHA?
FHA or Federal Housing Administration Loans are for people who are looking forward to purchasing or refinancing a home.
It's suitable for people who can’t make big down payments, have low credit, want low monthly payments, and are not eligible for a conventional loan.
FHA is the largest mortgage insurer in the world.
It insures homes and even hospitals.
It's the only government agency for which people don’t pay tax as it operates on the money it gets from the mortgage insurance included in mortgage payments.
The FHA allows people who are buying homes for the first time to obtain a loan (that they wouldn’t have qualified for otherwise) by insuring it.
Here's a quick rundown of our list:
- What is an FHA Streamline Refinance?
- Benefits of a Traditional Refinance
- You Can Lower Your Current Payment
- You Can Change the Term of Your Loan
- You Can Choose the Option That Fits Your Needs
- FHA Streamline Refinance Guidelines
- Who Is Eligible For it?
- A History of Three Month Payment Is Required
- There Is a Waiting Period of 210 Days between the Refinances
- Employment and Income Are Not Verified
- Credit Scores Are Not Verified
- The Refinance Must Have a Reason
- Loan Balances Can’t Be Increase for Loan Costs
- Appraisals Not Required
- FHA Streamline Refinance Insurance Requirements
- FHA Streamline Refinance MIP-Loans That Were Endorsed Before June 2009
- FHA Streamline Refinance MIP-Loans Endorsed After June 1st, 2009
- Advantages and Disadvantages of a Streamline Refinance
- Getting Started
What is an FHA Streamline Refinance?
This is a special mortgage product which is especially for homeowners who already have FHA mortgages.
This is a fast and simple way to refinance the mortgage according to current rates.
The best part about this is that there is no need for a home appraisal.
The program doesn’t care if you owe twice the amount of what your home is worth today and will refinance the house without any penalty.
Due to the no appraisal clause, the FHA streamline refinance is like any other loan product.
Another advantage is that majority of the people qualify for the FHA Streamline Refinance, especially because they don’t look that deeply into your credit score.
Benefits of a Traditional Refinance
While an FHA streamline refinance may be more appealing, there are still other reasons why you might decide to stick with a traditional refinance (whether it’s with FHA or a conventional loan.
You Can Lower Your Current Payment
One advantage is that you can easily refinance at a lower rate which would reduce the monthly payments and leave you with more money for other needs and wants.
You Can Change the Term of Your Loan
You can easily change the term of your loan if you plan on paying your loan quickly.
You Can Choose the Option That Fits Your Needs
While an FHA streamline refinance works quickly, a traditional refinance can be mean you have more flexibility in where you go to deal with the loan.
FHA Streamline Refinance Guidelines
The basic guidelines are:
- Employment verification is not required
- Income verification is not required
- Credit score verification is not required
FHA’s main purpose is to help people qualify for the low mortgage rates, which is why getting the loan has been made so easy.
Who Is Eligible For it?
FHA Streamline Refinance has set minimum standards for all its applicants. However, even with these standards, you’ll find that a lot of people can qualify for this streamline refinance
Some of them are:
A History of Three Month Payment Is Required
The main goal of the FHA is to reduce the loan risk. It requires applicants to produce a perfect payment history of three months. Furthermore, your loan must be a current loan, not a delinquent loan.
There Is a Waiting Period of 210 Days between the Refinances
It is a requirement by FHA that applicants should make at least 6 payments on their current loan and there should be a gap of 210 days between the closing date and the refinance.
Employment and Income Are Not Verified
FHA does not need any verification when it comes to the Streamline process.
You might be unemployed and can still be approved for the refinance if you meet rest of the requirements.
Credit Scores Are Not Verified
The credit scores are not verified by FHA. They use the payment history to determine the performance of future loans.
The Refinance Must Have a Reason
Applicants must have a very legit reason for the refinancing. There should be a net tangible benefit in the refinancing, such as a shorter term or a lower interest rate. They cannot refinance just because they can.
Loan Balances Can’t Be Increase for Loan Costs
The loan balances can’t be increased to cover loan charges. The loan balance is determined by Current Principal Balance plus the Upfront Mortgage Insurance Premium.
Appraisals Not Required
Since FHA is not concerned about the home value it does not need any appraisal for the Streamline Refinance Program. Its valuation point is the purchase price of the home.
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FHA Streamline Refinance Insurance Requirements
The FHA borrowers are supposed to make two mortgage insurance payments: the insurance payment which is made at the closing and an annual payment which is broken into 12 parts and paid each month.
FHA Streamline Refinance MIP-Loans That Were Endorsed Before June 2009
If your FHA mortgage was endorsed before June 2009, then you can easily refinance via the streamline refinance program. You can then pay the reduced rates for your annual mortgage insurance premium as well as the upfront MIP.
Upfront Mortgage Insurance Premiums (UFMIP)
For loans endorsed before June 2009, the upfront mortgage insurance equals to 0.01% of the total loan. If your new FHA Streamline refinance is for $500,000, you will be required to pay $50 at the time of closing.
Annual Mortgage Insurance Premiums (MIP)
For loans endorsed before June 2009, the FHA streamline refinance replacing the FHA loan is 0.55% of the annual mortgage insurance premium.
The annual MIP schedule is:
- 15-year loan terms with loan-to-value over 90% : 0.55 percent annual MIP
- 15-year loan terms with loan-to-value under 90% : 0.55 percent annual MIP
- 30-year loan terms with loan-to-value over 95% : 0.55 percent annual MIP
- 30-year loan terms with loan-to-value under 95% : 0.55 percent annual MIP
There is no additional mortgage insurance premium for FHA streamline that replaced FHA loan before June 2009 for which the mortgage exceeded $625,000 (Jumbo FHA mortgage)
FHA Streamline Refinance MIP-Loans Endorsed After June 1st, 2009
If your FHA mortgage was endorsed after 1st June 2009 then your mortgage insurance schedule is:
Upfront Mortgage Insurance Premiums (UFMIP)
The FHA streamline refinance that replaced the FHA loan after 1st June 2009, the upfront mortgage insurance premium is equal to 1.75% of the total loan size. This means that you pay $175 for a borrowed amount of $10,000. The amount of $175 is added to the loan balance if it’s not paid as cash.
For homeowners who refinanced within 3 years of their loan’s start, the FHA gives a refund on the mortgage insurance premium that was previously paid. After the 3 year period, the refund’s size diminishes. This is the reason why you should not wait to refinance with FHA. Your refund will go down if you wait for too long.
Annual Mortgage Insurance Premiums (MIP)
For loans endorsed before June 2009, the annual MIP schedule is:
- 15-year loan terms with loan-to-value over 90% : 0.70 percent annual MIP
- 15-year loan terms with loan-to-value under 90% : 0.45 percent annual MIP
- 30-year loan terms with loan-to-value over 95% : 0.85 percent annual MIP
- 30-year loan terms with loan-to-value under 95% : 0.80 percent annual MIP
The jumbo FHA mortgages will have to pay an additional MIP fee.
FHA MIP Cancellation Policy
The annual mortgage insurance premium is temporary for homeowners that are backed by the FHA. The FHA makes the determination based on the home equity at the time of closing. For homeowners who got the FHA streamline refinance after 1st June 2009 to replace a loan, the cancellation policy is:
- Loan-to-value of 90% or less at the time of closing: MIP required for 11 years
- Loan-to-value greater than 90% at the time of closing: MIP required for life of loan
The cancellation policy for both 15-year loan terms as well as the 30-year loan term is the same. The FHA MIP cancellation policy is applicable to loans that were endorsed after June 2013.
Advantages and Disadvantages of a Streamline Refinance
As it can be seen that people who got the FHA loan before June 2009 benefit more from the FHA streamline program. However, even people who got the loans recently should compare their monthly payments with the payments that are under the refinance.
Easy to Qualify
The FHA financing helps people whose credit is poor. If your credit is low, then you should compare the conventional loans with FHA loans. This option is for people who have a credit above 620 but below 740. If your credit is more than 740 then go for conventional loans.
No Appraisal Required
The best part is that even if your mortgage is more than your home’s worth FHA stream refinance is still a good option because no appraisal is required.
When one takes out an FHA loan they must repay the upfront mortgage insurance. You are required to pay annual mortgage insurance premiums if your loan-to-value is higher than 78%. The mortgage insurance increases the monthly payments as well as the loan balance. It is important that you now that the mortgage insurance premium will be higher if you got the loan after 1st June 2009.
Another disadvantage is that borrowers can’t finance the closing cost with the loan balance. Some lenders allow you to do that for a conventional loan refinance. You can find a lender that will allow you to have a “zero cost refinance.” This means that you will be paying a high interest rate on your loan to compensate for the closing costs that the lender paid.
One advice is that if you are considering “zero cost refinance” then do compare the options of refinancing into a conventional loan to see which one has the lowest monthly payments.
If you’ve gotten this far in the article, then you must already be interested in what the FHA Streamline program has to offer you.
If you understand how the FHA Streamline Refinance works, then you’ll just need to find a place to start getting lower monthly payments.
In the case that you still have unanswered questions, are uncertain about this refinancing option, or curious about loan limitations for this kind of refinancing, check out a couple more blog posts about the FHA streamline refinance process.
Start by contacting me.
I’ll help you with any details that you don’t understand and help you get the best possible rates on your refinancing.
Why not get started now?
Your FHA Streamline Refinance Expert,
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