One mortgage option when your credit isn’t so great or when you don’t have a large down payment saved up is a loan guaranteed by the Federal Housing Administration (FHA). These loans are designed to encourage homeownership. If you took out your FHA mortgage when interest rates were higher, you might be looking to refinance while rates are still low. If that’s the case, an FHA streamline loan might be just the thing for you.
The major requirement for an FHA streamline loan is that your current mortgage be an FHA mortgage. If you have a standard loan, you’re not eligible for the streamline program. You also need to be up-to-date on payments, meaning you can’t have made more than two payments 30 days after the due date over the past 12 months. You must have a perfect payment history over the past 3 months.
The streamline loan isn’t available immediately after you purchase the home. You need own and live in the property for at least six months before you’re eligible for the refinance.
You can’t just refinance your FHA mortgage using a streamline loan because you feel like it. The program requires a net tangible benefit. Examples of a benefit include reducing the monthly payment amount by at least 5 percent or changing an adjustable rate mortgage into a fixed rate mortgage.
Why you might want it
A streamline loan offers several benefits to homeowners. As the name might imply, the process is streamlined. You don’t have to undergo a credit check when applying for the loan. The streamline process also doesn’t require you to verify your income or employment, which significantly cuts down on the amount of paperwork involved.
An FHA streamline can be particularly beneficial in areas where a number of homeowners are underwater on their mortgages. The refinance doesn’t require your home to be appraised, so you can use the original value of the loan or the last appraised value as the refinance value.
It is possible to get a no cost refinance with the streamline program. The closing costs can’t be rolled into the value of the loan, though. Instead, they are paid by the lender and credited back to you in the form of a slightly higher interest rate. If you don’t have the cash to cover closing costs and want to take advantage of the benefits of an FHA streamline loan, accepting a slightly higher interest rate in exchange for no closing costs might be a suitable option.
If you are underwater on your mortgage or simply want to reduce your monthly payment, the streamline loan program offers several advantages. It’s worth considering if you’re thinking about refinancing your current FHA loan.
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