- Cash-Out Refinancing
- A refinance in which the new loan amount exceeds the total needed to pay off the existing mortgage. The difference goes to the borrower and can be... <a href='/glossary/what-is-cash-out-refinancing' title='See the full definition of Cash-Out Refinancing '>read more</a>
- Rate and Term Refinancing
- A mortgage refinance that replaces the existing mortgage with a new one but does not disburse cash to the borrower. Rate and term refinancing is... <a href='/glossary/what-is-rate-and-term-refinancing' title='See the full definition of Rate and Term Refinancing'>read more</a>
- Refinancing means replacing one loan with a new, better loan. Improving the terms of a loan can mean obtaining a lower interest rate, a lower monthly... <a href='/glossary/what-is-refinancing' title='See the full definition of Refinance'>read more</a>
If your existing mortgage is backed by the government, you may be entitled to refinance under a "streamline refinance" program. These cut both the time and the paperwork required, and often make it much easier to get approved because some ignore your employment status, the current market value of your home and your credit score and report.
If you have a mortgage provided under any of the following government-backed programs, read on to discover the benefits offered by a streamline refinancing and to learn about some of the rules and restrictions that surround them:
- FHA loans – Federal Housing Administration
- VA loans – Veterans Administration
- HARP refinances – Home Affordable Refinance Program
- USDA Rural loans – United States Department of Agriculture – rural development
Please note that, just because the government (which guarantees the loans) sets eligibility rules, that doesn't mean that every lender (which puts up the money) has to accept them. Lenders are entitled to impose their own eligibility criteria, and your existing one may be stricter than others. Don't despair. Simply shop around for a lender that's more comfortable with your personal circumstances.
FHA Mortgage Streamline Refinance
If you currently have an FHA loan, and want to cut your monthly payments by refinancing to a lower rate, you may benefit from this streamline program. Among its major attractions, which generally apply:
- You won't have to prove your income or employment status
- There won't be a credit check
- Your home won't be appraised again – the original valuation from when you first bought it will be used
However, there are some restrictions you need to be aware of, and these include:
- You must be current on your mortgage and have been so for the last three months. Beyond that, you can have been late once in the previous year, but you mustn't have been past due more than 30 days.
- You need to get a real benefit from the refinance. You should shave at least 50 basis points (one half of 1 percent) off your combined interest rate and mortgage insurance premiums. But ...
- You can refinance your adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM) without meeting that 50-basis-point threshold. In those circumstances, your rate can go up.
- This can't be a normal "cash-out refinance," which is one where you walk away with a lump sum to spend, though you can take out up to $500. Your only significant benefit can be a reduced rate that results in lower monthly payments.
- You may have to pay closing costs, although those should usually be lower than with a non-streamline refinance, because you don't have to pay for an appraisal, credit check and so on. However, some lenders may offer a "no-cost" option, usually by slightly increasing your new mortgage rate.
- You must have made at least six monthly payments since you last closed on the mortgage loan you're refinancing. In fact, it must be at least 210 days since you bought the home (closed) or last refinanced it.
The VA calls a mortgage refinanced under its streamline program an "Interest Rate Reduction Refinance Loan" (IRRRL), and it's sometimes referred to as a VA-to-VA refinance or loan. In some ways, the offering is similar to the FHA's (see above for details), including:
- There are no appraisals, credit checks or income/employment verifications
- You must be current on your mortgage payments and have been late no more than once in the previous 12 months
- You have to refinance to a lower mortgage rate unless you're moving from and ARM to an FRM
- The VA website says, "Veterans are strongly urged to contact several lenders because terms may vary" so shop around for the best deal
However, the VA's program differs from the FHA one in some important respects:
- You are generally entitled to roll up any closing costs and VA funding fee within the amount you borrow
- However, you may find a lender that's offering a "no-cost" deal, though that normally comes with a slightly higher mortgage rate, which is why "no cost" is in quotation marks
- Although you can't do a cash-out refinance using the streamlined process, you can borrow an extra $6,000 providing you spend it on energy-efficiency home improvements
A new streamlined version of the Home Affordable Refinance Program is due to be launched in October 2017. In the meantime, the existing program has been extended to fill the gap.
The big hurdle with HARP is that it applies only to mortgages guaranteed by Fannie Mae and Freddie Mac. But keep reading, because many homeowners don't know their loan is guaranteed by one of those, they don't realize their original lender may have sold on their mortgage in a secondary market. In fact, it doesn't matter from whom you originally borrowed or what logos are on your mortgage statements, you can only tell whether yours qualifies for HARP by checking. You can do so by using the online look-up tools on Fannie's website and Freddie's website – and you must use BOTH to be sure. Another requirement is that your mortgage was originated on or before May 31, 2009.
HARP exists to help those who have little or no "equity" in their homes. Equity is the difference between the amount you owe on your mortgage today and the current market value of your home. So if your home's worth $100,000 and your mortgage balance is $120,000 you have negative equity, which is often called being "underwater" or "upside down." In that case, your loan-to-value (LTV) ratio is 120 percent, because you determine your LTV by dividing your mortgage balance by your home's value by your mortgage balance and moving the decimal point a couple of places to the right.
That's not a problem with HARP. In fact, you won't be eligible if your LTV is lower than 80 percent. And, there's no fixed cap on how high your LTV can be. So even if you owe twice as much or more on your mortgage than your home is worth, you may still qualify.
But first you have to meet some further eligibility criteria:
- You must be current on your mortgage
- You can have been late on a mortgage payment only one in the last 12 months
- You can't have been more than 30 days late on a mortgage payment in the last six months
- The real property that's mortgaged can be your primary residence, a second home or an investment property
- As with most other streamline refinance programs, you shouldn't have to undergo credit checks or pay to have your home appraised
As the official HARP website suggests, "Even if you applied for HARP refinancing before and were declined, look into it again. With expanded requirements, more people are now eligible."
USDA Streamlined Assist Refinance Loans
Like other streamlined programs, this United States Department of Agriculture offering allows you to refinance your loan with minimum cost, fuss and bother. You won't need an appraisal (unless you've received subsidy during your loan term), provide a credit report or undergo a debt-to-income calculation. And you can roll up the guarantee fee and other eligible closing costs in your new mortgage.
However, there are some eligibility criteria:
- You must be an existing USDA direct or guaranteed rural homebuyer
- You must have been current on your mortgage payments for the last 12 months
- When you add up your monthly payments for mortgage principal and interest, real estate taxes and homeowners insurance, your refinance must save you at least $50 net on the total of these
- Your new mortgage rate must be lower than your existing one
- You can still apply, even if the home on which the mortgage is secured has been re-designated, and is no longer in an area that is categorized as eligible under other USDA programs
- All the borrowers named on the original note must remain on the new one, but you can add new ones
So just like the other streamlined programs, the USDA one can provide fast, inexpensive and real relief to those who are struggling with unnecessarily high mortgage rates.
Frequently Asked Questions
My wife and I are looking to refinance our 1st and 2nd mortgage and are at wits end.
4 Answers | asked 1 year ago
What's the minimum credit score needed to refinance?
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Concerned about Refi on Internet
2 Answers | asked 8 months ago
How many loans have you processed as a loan officer.
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