Streamline Refinance – FHA Streamline Refinance Guidelines & Rates
The FHA Streamline is a refinance mortgage loan available to homeowners with existing FHA mortgages. The program simplifies home refinancing by waiving the documentation typically required by a bank, including income and employment verification, bank account and credit score verification, and an appraisal of the home. Homeowners can use the program to reduce their FHA mortgage insurance premiums (MIP). NOTE: FHA mortgage guidelines change often. This FHA Streamline Refinance information is accurate as of today, October 23, 2016.
What Is An FHA Streamline Refinance?
The FHA Streamline Refinance is a special mortgage product reserved for homeowners with existing FHA mortgages. FHA Streamline Refinances are the fastest, simplest way for FHA-insured homeowners to refinance their respective mortgages into today’s mortgage rates. The FHA Streamline Refinance program’s defining characteristic is that it does not require a home appraisal. Instead, the FHA will allow you to use your original purchase price as your home’s current value, regardless of what your home is actually worth today. In this way, with its FHA Streamline Refinance program, the FHA does not care if you are underwater on your mortgage. Rather, the program encourages underwater mortgages. Even if you owe twice what your home is now worth, the FHA will refinance your home without added cost or penalty. The “appraisal waiver” has been a huge hit with U.S. homeowners, allowing unlimited loan-to-value (LTV) home loans via the FHA Streamline Refinance program. Homeowners in places like Florida, California, Arizona and Georgia have benefitted greatly, as have homeowners in other states and cities affected by last decade’s housing market downturn. Beyond this “no appraisal” feature, however, the FHA Streamline Refinance behaves very much like any other loan product. It’s available as a fixed rate or adjustable mortgage; it comes as a 15- or 30-year term; and there’s no FHA prepayment penalty to worry about.
Another big plus is that FHA mortgage rates are the same in the FHA Streamline Refinance as with a “regular” FHA loan. There’s no penalty for being underwater, or for having very little equity.
FHA Streamline : No Verification Of Job, Income, Credit
Another big plus is that the FHA Streamline Refinance is fairly easy for which to qualify.
Earlier this decade, in an effort to help U.S. homeowners, the FHA abolished most of the typical verifications required to get a mortgage. So, today, as it’s written in the FHA’s official mortgage guidelines :
⦁ Employment verification is not required with an FHA Streamline Refinance
⦁ Income verification is not required with an FHA Streamline Refinance
⦁ Credit score verification is not required with an FHA Streamline Refinance
There’s no need for a home appraisal, either, so when you put it all together, you can be (1) out-of-work, (2) without income, (3) carry a terrible credit rating and (4) have no home equity. Yet, you can still be approved for an FHA Streamline Refinance. That’s not as crazy as it sounds, by the way. To understand why the FHA Streamline Refinance is a smart program for the FHA, we have to remember that the FHA’s chief role is to insure mortgages — not “make” them. It’s in the FHA’s best interest to help as many people as possible qualify for today’s low mortgage rates. Lower mortgage rates means lower monthly payments which, in theory, leads to fewer loan defaults.
This is good for homeowners that want lower mortgage rates and for the FHA — but mostly for the FHA.
Are You FHA Refinance Eligible?
Although the FHA Streamline Refinance eschews the “traditional” mortgage verifications of income and credit score, as examples, the program does enforce minimum standards for applicants. The official FHA Streamline Refinance guidelines are below. Note that not all mortgage lenders will underwrite to the official guidelines of the Federal Housing Administration. Perfect, 3-Month Payment History Is Required. The FHA’s main goal is to reduce its overall loan pool risk. Therefore, it’s number one qualification standard is that homeowners using the Streamline Refinance program must have a perfect payment history stretching back 3 months. 30-day, 60-day, and 90-day lates are not allowed. One mortgage late payment is allowed in the last 12 months. Loans must be current at the time of closing.
210-Day “Waiting Period” Between Refinances
The FHA requires that borrowers make 6 mortgage payments on their current FHA-insured loan, and that 210 days pass from the most recent closing date, in order to be eligible for a Streamline Refinance.
Employment And Income Are Not Verified. The FHA does not require verification of a borrower’s employment or annual income as part of the FHA Streamline process. There is no Verification of Employment, nor are there paystubs, W-2s or tax returns required for approval. You can be unemployed and get approved for a FHA Streamline Refinance so long as you still meet the other program requirements.
Credit Scores Are Not Verified. The FHA does not verify credit scores as part of the FHA Streamline Refinance program. Instead, it uses payment history as a gauge for future loan performance. This means that FICO scores below 640, below 620, below 580, and below 500 are eligible for Streamline Refis.
The Refinance Must Have “Purpose”. Streamline Refinance applicants must demonstrate that there’s a Net Tangible Benefit in the refinance; a legitimate reason for refinancing. Loosely, Net Tangible Benefit is defined as reducing the “combined rate” by at least one-half of one percent. For instance, the homeowner has an FHA loan opened in May 2013 with a rate of 4.00%, and a monthly mortgage insurance premium equal to 1.35%. The combined rate is 5.35%.
The homeowner receives a rate quote at 3.75% with MIP of 0.85%. She saves on her rate and mortgage insurance, since FHA MIP was reduced in January 2015. The new combined rate would be 4.60%, or three-quarters of one percent lower than the existing combined rate.
The FHA refinance is eligible. Another allowable Net Tangible Benefit is to refinance from an adjusting ARM into a fixed rate loan. Taking “cash out” to pay bills is not an allowable Net Tangible Benefit.
Loan Balances May Not Increase To Cover Loan Costs. The FHA prohibits increasing a Streamline Refinance’s loan balance to cover associated loan charges. The new loan balance is limited by the math formula of (Current Principal Balance + Upfront Mortgage Insurance Premium). All other costs — origination charges, title charges, escrow population — must be either (1) Paid by the borrower as cash at closing, or (2) Credited by the loan officer in full.
The latter is called a “zero-cost FHA Streamline”.
Appraisals Not Required. The FHA isn’t concerned about home value — it’s insuring your loan regardless. Therefore, the FHA does not require appraisals for its Streamline Refinance program. Instead, it uses the original purchase price of your home, or the most recent appraised value, as its valuation point. Homes that are underwater are still FHA Streamline-eligible.
FHA Streamline Refinance Mortgage Insurance Requirements. The FHA Streamline Refinance is an FHA-insured mortgage, and FHA borrowers are required to make two types of mortgage insurance payments — an upfront mortgage insurance payment paid at closing, plus an annual payment split into 12 installments, paid with your mortgage payment each month. With respect to mortgage insurance premiums, homeowners using the FHA Streamline Refinance program are split into two classes :
⦁ Homeowners whose new loan replaces an FHA-backed mortgage endorsed prior to June 1, 2009
⦁ Homeowners whose new loan replaces an FHA-backed mortgage endorsed on/after June 1, 2009.
Homeowners in the first class — those with “old” FHA mortgages — are assigned different mortgage insurance than newer FHA homeowners.
FHA Streamline MIP For Loans Endorsed On/After June 1, 2009. If you are refinancing an FHA mortgage via the FHA Streamline Refinance program and your existing FHA mortgage was endorsed on, or after, June 1, 2009, your mortgage insurance premium schedule on your new FHA loan is as follows.
Upfront Mortgage Insurance Premiums (UFMIP). For an FHA Streamline Refinance replacing a loan endorsed on, or after, June 1, 2009, the FHA upfront mortgage insurance premium is equal to 1.75 percent of your loan size, or 175 basis points. This is $1,750 for every $100,000 borrowed. The FHA automatically adds the $1,750 premium to your loan balance for you — it’s not paid as cash. However, not all refinancing households will pay the full amount.
For FHA-backed homeowners refinancing within the 3 years of their existing loan’s start date, the FHA provides a refund on your previously-paid upfront MIP. The size of the refund diminishes as the 3-year window elapses.
For example, a homeowner who refinances an FHA mortgages after 11 months is granted a 60% refund on his initial FHA UFMIP. 30 days later, the refund drops to 58%. After another 30 days, it drops to 56%, and so on.
This is why is rarely a good idea to “wait to refinance” with the FHA. With the FHA Streamline Refinance program, the sooner you refinance, the bigger your refund, and the lower your total loan size. This lowers the monthly payment and preserves the home equity — two huge positives.
Annual Mortgage Insurance Premiums (MIP). The annual MIP schedule for an FHA Streamline Refinance which replaces a loan from on, or after, June 1, 2009 is as follows :
⦁ 15-year loan terms with an LTV over 90%: 0.70 percent annual MIP
⦁ 15-year loan terms with an LTV under 90%: 0.45 percent annual MIP
⦁ 30-year loan terms with an LTV over 95%: 0.85 percent annual MIP
⦁ 30-year loan terms with an LTV under 95%: 0.80 percent annual MIP
Note that these MIP costs may be lower than what you’re paying currently.
In January 2015, the FHA lowered its mortgage insurance premiums on 30-year loans, making it less expensive to carry an FHA home. If your current FHA MIP is higher than what’s shown above, consider starting a refinance immediately to benefit from a new, lower FHA MIP.
FHA MIP Cancellation Policy. The FHA requires some homeowners to pay mortgage insurance for as long as their loan is in effect. If your FHA Streamline Refinance replaces a loan from on, or after, June 1, 2009, the rules on your FHA MIP cancellation are as follows:
⦁ LTV of 90% or less at the time of closing: MIP is required for 11 years
⦁ LTV greater than 90% at the time of closing: MIP required for life of loan
The FHA MIP cancelation policy applies to 15-year loan terms and 30-year loan terms equally.
Note that refinancing homeowners are welcome to bring cash to closing in order to reduce their loan balance and change their MIP disposition. However, not everyone will have the cash to make such a move.
This is why, when exploring an FHA Streamline Refinance, you should also look other refinance programs including the conventional mortgage loan via Fannie Mae or Freddie Mac, which is available with nearly every mortgage lender. The FHA allows its homeowners to refinance to cancel FHA MIP.
FHA Streamline Refinance MIP (For Loans Endorsed Before June 1, 2009). If your existing FHA mortgage was endorsed prior to June 1, 2009, your mortgage insurance premiums have been “grandfathered”. You can refinance via the FHA Streamline Refinance program and pay reduced rates for both for upfront MIP and your annual mortgage insurance premium.
Upfront Mortgage Insurance Premiums (UFMIP). For an FHA Streamline Refinance that replaces a loan endorsed prior to June 1, 2009, the new FHA mortgage’s upfront mortgage insurance is equal to 0.01 percent of the loan size, or 1 basis point. For example, if your new FHA Streamline Refinance is for $100,000 mortgage, the FHA will assess a $10 upfront mortgage insurance premium (MIP) to be paid at closing. The FHA automatically adds the $10 payment to your new loan balance.
Annual Mortgage Insurance Premiums (MIP).
Annual MIP is similarly cheap for older FHA loans. For an FHA Streamline Refinance replacing an FHA loan endorsed prior to June 1, 2009, the annual MIP is 0.55% annually, or 55 basis points.
The complete annual MIP schedule is as follows :
⦁ 15-year loan terms with an LTV over 90%: 0.55 percent annual MIP
⦁ 15-year loan terms with an LTV under 90%: 0.55 percent annual MIP
⦁ 30-year loan terms with an LTV over 95%: 0.55 percent annual MIP
⦁ 30-year loan terms with an LTV under 95%: 0.55 percent annual MIP
15-year fixed rate mortgages with LTVs of 78% or less pay no annual MIP.