So why haven't you refinanced yet?
Three major obstacles to refinancing are credit problems, not having the time to provide all the documentation involved, and having a home that has dropped in value. If any of those is the reason you have not yet refinanced, you should look into the FHA Streamline Refinance Program. For homeowners who have an FHA loan, this program is refinancing made easy.
FHA Streamline Refinance Program - Refinancing made easy
FHA loans are made by private lenders, but are backed by FHA mortgage insurance. That insurance gives lenders the confidence to make loans they might otherwise not make. In return, the FHA requires these loans to meet certain standards of size, creditworthiness, and structure. If you have an FHA loan, you probably recall that there was a fair amount of documentation needed on the front end in order to qualify.
When it comes to refinancing a loan, those that qualify for the FHA Streamline Refinance Program are a different story from original purchase loans. The FHA recognizes that it is already responsible for insuring the loan, so as long as no additional risk is taken on, refinancing can be a win-win for the FHA and the borrower if it reduces the likelihood of default by reducing loan payments.
For this reason, FHA refinance loans require less documentation, including:
- No credit check. This not only means one less step in the qualification process, but it also means you don't have to shy away from refinancing just because you've had some credit problems since you last qualified for a mortgage.
- No employment or income verification. This is another time saver, and it also means you don't have to be prevented from refinancing if you are out of work or have suffered a cut in income.
- No appraisal necessary. If your home value has gone up, getting an appraisal might actually work to your advantage, but if your home value has declined, this needn't be a barrier to refinancing and you don't have to incur the delay and expense of getting an appraisal.
Such low documentation hurdles would appeal to just about any borrower, but there are limits on who can qualify for the FHA Streamline Refinance Program. Here are the key limitations:
- Applies only to homeowners with current FHA mortgages. Again, the premise here is that the FHA is willing to offer this program if refinancing simply means rolling over a loan risk it has already assumed. If you do not have an FHA mortgage, you won't be eligible.
- Loan payments must be up-to-date. This creates a great incentive to get your mortgage payments up to date, because refinancing can make those payments easier to make in the future.
- There must be a net tangible benefit. This generally means that the borrower's monthly interest and principal payments have to be reduced as a result of refinancing, but in certain cases refinancing from an adjustable to a fixed-rate mortgage is deemed beneficial enough to qualify.
- Cash-out refinancing is not eligible. Cash-out refinancing, which is a way of tapping into home equity, would mean raising the amount of principal outstanding and thus increase the FHA's risk. Therefore, cash-out refinancing is not eligible for this program.
- Lenders may apply their own standards. With the FHA only providing the mortgage insurance, you still have to go through a private lender to get the loan itself. Those lenders might impose their own standards and documentation requirements on borrowers, but the advantage of having private lenders provide these loans is that it gives you the opportunity to shop around for the best deal.
If you meet the requirements for an FHA Streamline Refinance loan, the program can remove the barriers of damaged credit, limited time to assemble documentation, and lower home values. However, one important variable remains: mortgage rates have to be low enough for you to benefit from refinancing. That's not a condition you can count on lasting forever, so you should look into this program while you still could benefit from it.