The FHA Streamline Refinance program was introduced by the Federal Housing Administration (FHA) to help existing FHA borrowers lower their interest rates and monthly payments *without extensive underwriting *. It was launched in the early 1980s as a way to simplify the refinancing process for FHA-insured mortgages.
Non-credit qualifying FHA to FHA streamline refinance.
- Mortgage only credit report
- No Asset verification
- No Income verification
- No automated underwriting requirement
- No Real Estate Owned documentation
- No Appraisal
Must have a net tangible benefit such as:
- Reduction to interest rate
- Reduction of loan term
- Change from ARM to a Fixed-rate
Borrower eligibility:
- Minimum mid credit score of 580
- Borrower must have made payments for all Mortgages secured by the subject Property within the month due for the month prior to mortgage disbursement.
- Review of late payment history; if current loan is 0-6 months old at the time of application, zero late payments are allowed (0x30). For loans older than 7 months, one 30-day late payment is allowed (1x30). Special consideration for loans that have been in forbearance; Borrower must have completed the Forbearance Plan and made at least three consecutive monthly mortgage payments within the month due since completing the plan.
Seasoning requirements:
- 6 payments have been made
- 6 months from the 1st payment due date
- 210 days from the closing to new case number assignment.
Loan amount calculation:
The lesser of:
- The original principal balance of the current mortgage.
OR
- Outstanding principal balance of the existing mortgage as of the month prior to the new mortgage disbursement date.
Plus, items that are typically added to the payoff of the existing loan that include:
- Interest due on the existing mortgage
- Outstanding late charges (if applicable)
- Escrow shortage (if applicable)
- Monthly MIP due on existing mortgage
Less any refund from the original UFMIP (Up Front Mortgage Insurance Premium)
Closing costs and pre-paids cannot be rolled into the new base loan amount.
Borrowers can avoid bringing funds to close to cover closing costs by locking an interest rate that provides a lender credit to offset fees. *However, a lender credit cannot cover the amount needed to set up a new escrow account for taxes and insurance. In some cases, a transfer of escrow balance from the old loan to the new loan is possible if the refinance will be sold to the same servicing lender or some servicing lenders may deduct the escrow balance from the payoff. * If neither of those situations apply, the borrower will bring the amount needed to fund the new escrow account to closing, and once the old loan is paid off, they will receive a refund from the old lender for the escrow balance.
A borrower can receive a maximum of $500 back at closing with an FHA Streamline Refinance.
Q and A
Q: Regarding the amount needed to set up the new escrow account with the new loan. Will that amount be the same as the balance of my current escrow account?
A: No, in most cases, the amounts will not offset each other perfectly due to changes in taxes and insurance from year to year. Your new escrow will be set up based on current verified amounts needed for property taxes and homeowner's insurance. Your old escrow account may be collected based off last year's amounts for taxes and insurance, or you may have an escrow shortage adjustment that is not up to date at the time of the refinance, so the balance with your current lender may be less than the amount required for the new loan.
Q: What if rates continue to get better over time; can I refinance again with a new streamline refinance?
A: Yes, once you meet the seasoning requirements listed above, you can refinance again to a lower rate as long as the net tangible benefit requirements can be satisfied.
Q: With an FHA Streamline refinance, can I add or remove a borrower from the loan?
A: Adding or removing a borrower from a loan can be done with a qualified streamline refinance. A non-credit qualifying streamline must have the same borrowers on the new loan that signed on the existing loan. Suppose a borrower used a parent to co-sign for the original loan, and the borrower wanted to remove the parent on the new refinanced loan. In this case, the borrower will need to credit qualify without the help of the co-signer with income verification, a full credit report, and automated underwriting approval but can avoid a new appraisal as long as the loan amount calculation is determined as stated above.
