Is your FHA mortgage more expensive than you bargained for when purchasing your home? For many, the annual mortgage insurance is the Achilles heel of their FHA loan, driving monthly payments up with no relief in sight. However, in January 2015, these premiums were sharply reduced by .50 percent, and you can get that discount with an FHA Streamline refinance. You might even be able to get a better mortgage rate; today's FHA refinance rates can provide some much needed relief.
Advantages of Streamline Refinancing
The Federal Housing Administration has offered streamline refinancing of insured home loans since the 1980s. The term "streamline refinance" means the documentation and underwriting requirements are greatly reduced, removing many of the barriers to refinancing that you would encounter with a traditional home loan.
In fact, the FHA does not require a home appraisal, employment verification, income verification or even a credit score to qualify! This doesn't mean that you won't find lenders checking credit or asking for pay stubs when shopping for refinance rates; it simply means these items are not required to qualify for the program
FHA Streamline Refinance Program Requirements
Before you can qualify for today's lowest FHA refinance rates, you'll need to understand the program requirements. In order to qualify for an FHA streamline refinance, your existing home loan must currently be insured by the FHA. You must not be behind on your payments and cannot have any 30, 60, or 90 day late payments. You must also be current during the application/closing process. The FHA allows only one late payment from the past 12 month period.
In addition to having good repayment history, your new home loan must demonstrate what the FHA calls a "net tangible benefit" to qualify. The general guideline is that refinancing must reduce your mortgage payment's net principal, interest and mortgage insurance by a minimum of five percent. Another way to demonstrate net tangible benefit is by converting your adjustable rate (ARM) mortgage to a fixed interest rate. You will not be allowed to take cash out with a streamline refinance.
The final requirement is that you will not be allowed to roll your closing costs into the new mortgage balance. All of your closing costs, including the loan origination fee must be paid out-of-pocket by you, or absorbed by your lender (your interest rate will be slightly higher) if you want to fully take advantage of today's lowest interest rates.
A Warning When Shopping for FHA Refinance Rates
It's important to remember that the FHA is not a mortgage lender. The government has tried to remove as many of the roadblocks to refinancing as possible to help homeowners that wouldn't otherwise qualify; however, they are not protecting you from paying too much. This is why comparison shopping is so important.
Every mortgage loan has a set of fees that have to be paid one way or another, and these fees make or break the deal you're getting. Don't be fooled by "no-cost" refinance offers, as these loans simply trade paying your fees for higher mortgage rates. (A "no-cost" refinance has costs, but it might still be a good deal for you.)
Comparison Shopping Tips
LoanExplorer by LendingTree is an excellent tool for comparing FHA refinance offers. These rates and fees make or break the deal you're getting, as you'll need to recoup your expenses from the savings created by the new mortgage's lower payment. You can find out how long it would take to break even by using LendingTree's Refinance Breakeven calculator. Know that you are not required to refinance with your current mortgage lender. By comparing offers from several FHA lenders, you'll be well on your way to taming your mortgage with today's best FHA refinance rates.