The "streamline" refinance is characterized by fewer documentation requirements, flexible underwriting guidelines and / or lower fees. This product is almost always offered by the entity which owns, services or insures the loan to be refinanced. These mortgage refinance programs are all some form of streamline loan:
- FHA Streamline (with or without an appraisal)
- The VA's Interest Rate Reduction Refinance Loan (IRRRL)
- Home Affordable Refinance Program (HARP)
- USDA Rural Refinance
Fannie Mae and Freddie Mac no longer offer streamlined refinances outside of the HARP plan.
Benefits of Streamline Mortgages
Borrowers who choose a streamline mortgage refinance can benefit in one or more ways:
- Easier qualifying
- Less documentation
- Lower fees
For example, the HARP plan allows homeowners to refinance regardless of their property value -- even if their mortgage balance exceeds their home's worth. FHA borrowers can be approved even if they have no verifiable source of income and their credit score has dropped below the agency's minimum. And borrowers who choose the VA's IRRRL plan get a deep discount on their funding fee -- it's just .5 percent.
Why Fewer Requirements?
The reason for offering streamline refinancing without verifying income, credit or property value is that the lender, servicer or insurer already has a business relationship with the borrower, and it's already "on the hook" if the borrower can't repay the loan. It doesn't matter, then, what his income is or how much her credit score has dropped. In this case, anything that improves the borrower's financial position (like a lower interest rate and payment) reduces the risk of default for the lender, servicer or insurer.
The exact nature of the requirements imposed depend on the lender (many impose stricter guidelines than the government requires) and the program.
The eligibility requirements for the FHA Streamline products are:
- The mortgage being refinanced must be at least 210 days old
- The new mortgage must offer what's called a "net tangible benefit," which means it must better the borrower's financial position.
- The mortgage being refinanced must be current, with no late payments in the last three months
- No cash out may be taken
FHA's guidelines indicate that income, employment, assets and credit need not be verified, although individual lenders may require it. In addition, requirements for verification can kick in (for example, if the mortgage has been assumed) in less usual circumstances.
FHA streamline mortgages come in two types -- with and without an appraisal. An appraisal is required if the homeowner wishes to wrap the costs of refinancing into the new loan. Homeowners who don't need to wrap their costs into their refinance loan can choose to refinance without an appraisal. This is a decided advantage for those in areas in which homes lost significant value. The FHA Streamline Refinance can be used on more than just primary homes -- vacation homes and investment properties are also eligible.
VA Streamline (IRRRL)
The VA Streamline program's official name is the Interest Rate Reduction Refinance Loan (IRRRL) and it's backed by the Department of Veterans Affairs.
The eligibility requirements for the VA Streamline (IRRRL) are:
- The applicant must certify that he / she occupies or previously occupied the dwelling
- Mortgage being refinanced is a VA loan
- The new mortgage payment must be lower (except for ARM-to-fixed refinances)
- Payment history on old mortgage must show no more than one late payment in last 12 months
The VA requires no documentation of employment / income, assets or credit, and an appraisal is not usually required.
USDA Rural Refinance
The USDA Streamline program is available to homeowners with USDA Rural Housing loans. The Rural Refinance program is available to those with direct or guaranteed loans, but it is not yet available to everyone.
The eligibility requirements for the USDA Rural Refinance are:
- Only primary residences are eligible
- The property must be located in a participating state (see below)
- There can be no late mortgage payments (30 days +) in the last 12 months
- The mortgage to be refinanced must be current
- The refinance must reduce the homeowner's principal and interest payments
- No cash out allowed
There is no income or employment verification required; credit needn't be considered and appraisals aren't required by the USDA. The Rural Refinance is currently available in AK, AL, AR, AZ, CA, CO, FL, GA, ID,IL, IN, KS, KY, MI, MO, MS, MT, ND,NV, NJ, NM, NC, OH, OK, OR, RI,SC, SD, TN, TX, UT, WA, WI, WV and Puerto Rico.
HARP (Fannie Mae and Freddie Mac)
The Home Affordable Refinance Program (HARP) is the only streamline program for homeowners with conforming (Fannie Mae or Freddie Mac) mortgages.
HARP's eligibility requirements:
- Mortgage to be refinanced must be dated later than May 31, 2009 and it must be current
- The mortgage payment can't have been late (30+days) more than once in the last 12 months, or at all in the last six months.
HARP refinances do not limit the loan-to-value for a fixed rate mortgage, and verification of the applicant's income, credit or employment is not required by the government (but might be by the lender).
The HARP program is set to end on December 31, 2015 unless it is extended by lawmakers.