Thursday, April 21, 2016

Is an FHA Streamline Refinance a way to save your home?

Sometimes people who may be facing financial difficulty think they want a modification of their existing loan when an easier option and one that may help them even more is available.  That option is an FHA Streamline Refinance.  A modification is changing the terms of an existing mortgage while a refinance is paying off an existing mortgage and getting a new mortgage.

What Is an FHA Streamline Refinance? 

The FHA Streamline Refinance program is a special refinance program for people who have an existing FHA loan. It is the simplest and easiest way to refinance. "Streamline" refers to an easier process and less paperwork. Unlike a traditional refinance an FHA Streamline Refinance allows a borrower to refinance without having to verify their income and assets. An appraisal may not be required depending on how much you have paid on the original loan balance.  Another advantage of this program is that it does not have a maximum loan-to-value ratio, meaning you could even be upside down on your loan (owe more than the value of the property) and still be able to take advantage of the program.

The basic requirements and benefits of an FHA streamline refinance are:

  • The mortgage to be refinanced must already be FHA insured.
  • You have to live in the house you are refinancing.
  • The mortgage to be refinanced must be current (not delinquent).
  • You can’t have made more than two, 30-day late payments on your FHA mortgage in the past 12 months.
  • You have not completed an FHA Streamline Refinance in the past 6 months.
  • The refinance results in a net tangible benefit to the borrower. That basically means it must lower your monthly payments. The streamline refinance must reduce your mortgage payment by at least 5 percent.
  • FHA does not have a minimum credit score requirement. While FHA does not have a minimum score for a streamline refinance, your lender might. You probably are going to have to have a score of at least 620.
  • You can refinance without paying any closing cost out of pocket. To do this however you may have to pay a slightly higher interest rate and have an appraisal. 
  • FHA Streamline Refinance is only available to homeowners who made their home purchase before June 1, 2009.
  • You will get to skip a house payment.  That is because house payments are paid in arrears, not in advance, so it works out that the borrower gets to skip a month in making a house payment.
  • No maximum loan-to-value requirement, so even if you are "underwater" you may be able to refinance.   
  • There is no debt-to-income ratio requirement. That means if you have other debt, that will not disqualify you from getting an FHA streamline refinance.  
  •  Employment verification is not required with an FHA Streamline Refinance
  •  Income verification is not required with an FHA Streamline Refinance
  •  Credit score verification is not required with an FHA Streamline Refinance

Please be aware that while  FHA says you can basically refinance your underwater home even if you have bad credit and are unemployed, most lenders will require you to meet a certain level of standards that they impose.  These may vary from lender to lender.

Sometimes one may not be eligible for a streamline refinance but eligible for a modification; other times the reverse may be true. It depends. To sit down with a HUD-approved housing counselor and have your situation reviewed and consider all of the options, give me a call: Rod Williams, 615-850-3453. There is no cost for our mortgage default services.

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