The FHA streamline refinance program is a lifesaver for many borrowers who hope to take advantage of today’s ridiculously low interest rates if they qualify for it.
In many areas, real estate values have fallen to about half of what they were in 2008! This has put many homeowners with long standing great credit histories in the worst financial predicament of their entire lives.
They put great faith in the idea that real estate values would always go up. No one thought they would head the other way so fast. As a result, many homeowners are now in a situation referred to as being “under water” on their homes. They owe more, in some cases a lot more, than their homes are worth.
An FHA streamline refinance does not require a new appraisal to be done on your home. So even if you are currently under water on your property, you may still qualify for an FHA streamline refinance. FHA realizes they are in no worse position as long as you do not add to the current balance of your loan.
Borrowers who currently already have an FHA insured home loan meet the first criteria for qualifying for an FHA streamline refinance. You must currently have an FHA loan in order to use the program. There really aren’t all that many other criteria to meet in order to qualify for an FHA streamline refinance.
First, you must have a perfect 12 month payment history. If you have been on time with your payments, you have demonstrated to FHA that you can make the payments so they don’t ask many more questions if you want to lower your interest rate. (Surprisingly, FHA at one time allowed you to have been late on your payment and still remain eligible. This is no longer the case.) In addition, you must have made at least 6 payments on your current loan and you must wait at least 210 days from your most recent loan closing before you apply for a new streamline refinance.
The FHA streamline refinance guidelines do not require the lender to verify your employment or how much income you have coming in. FHA also does not have a requirement that the lender check your credit score before approving you for a streamline refinance. Unfortunately, lenders are allowed to employ a stricter standard and almost all of them do have minimum credit score requirements. The credit score of the average FHA borrower is above 680 though, so most borrowers still make it past this credit score hurdle in order to qualify.
Here comes the hard part, though. FHA requires that the borrower and lender show that there is a “net tangible benefit” to refinancing the loan. On the surface this sounds perfectly reasonable. However, it gets tricky when you read the fine print.
When a borrower is attempting to use the streamline process to refinance to a fixed rate mortgage, the borrower’s payment excluding taxes must be 5 % below the current payment. Unfortunately, earlier in 2011 FHA raised their annual mortgage insurance rates. Therefore, many people who could currently lower their interest rates and save a lot of money over time can no longer do so because they will be required to pay a higher mortgage insurance rate on the new loan than they were paying on the old one.
Unfortunately, the only way to know whether you can meet this last qualification requirement is to consult with an FHA approved lender. Chances are that if your current interest rate is not above 6% you will have difficulty qualifying for the FHA streamline refinance.
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