Refinancing your mortgage can mean you pay less out-of-pocket each month, pay a lower interest rate and pay less over the life of your home loan. But, there might be a few barriers for the average borrower when it comes to refinancing, namely your credit score and the current value of your home compared to the amount you owe. If you are worried that you won’t qualify for a conventional refinancing program, an FHA Streamline loan might be the option for you. There are a few key differences between an FHA refinance and a conventional one that make it more suitable for certain borrowers.
One of the biggest differences between an FHA Streamline refinance and a standard one is that to qualify for the FHA program, your mortgage already needs to be insured by the Federal Housing Administration. Along with having an FHA mortgage, you also need to be up to date on your payments and you need to have owned the property for at least six months.
Underwater loans are OK
Usually, when you refinance your mortgage, the amount of the loan needs to be 80 percent or less than your home’s value. If the new loan is worth more than 80 percent of your home’s value, you might have to pay mortgage insurance or the lender might turn you down, thinking you’re too much of a risk. With an FHA Streamline refinance, the loan to value ratio of the home matters less, since the mortgage typically doesn’t require an appraisal.
While you might be able to qualify for an FHA refinance when the value of your home is less than the amount of the loan, you generally can’t use the refinancing program to borrow more money. That means that if your home has increased in value since you purchased it, you can’t take advantage of that if you go the FHA route.
Your credit score matters less when applying for an FHA refinance than it does for a conventional refinance. The US Department of Housing and Urban Development typically doesn’t require a credit report when issuing an FHA loan, which means you might be able to qualify for a refinance even if your credit is less than stellar.
Appraisal and other issues
Just because an appraisal and credit check aren’t always required doesn’t mean every FHA refinance excludes them. There are times when having your home appraised before an FHA Streamline can work in your favor. If you want to roll the closing costs into the mortgage, then an appraisal is necessary, for example. You might also have to have a credit check if you hope to borrow more than the original amount of the loan.
FHA mortgage programs aren’t for everyone. But, if you qualify for the refinance program, you might find that it offers a good way to save on your mortgage without a lot of fuss or hassle.
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