Determining if FHA Streamline Refinance is Prudent

There are numerous benefits offered to those who utilize the FHA loan program for their mortgage, and some of these are present in the realm of refinancing. In particular, one form of FHA refinancing that's often carried out by homeowners for a few different benefits is known as the streamline refinance.

At Integrity First Lending, we're happy to assist clients throughout Utah with several different FHA loan refinancing programs, including streamline refinancing. What exactly is a streamline refinance in the FHA loan program, and who are those who may benefit from them -- and also those who likely should be looking for other options? Here's a rundown on everything you need to know.

FHA Streamline Refinance Basics

An FHA streamline refinance refers to a method of refinancing available to many FHA loan borrowers that does not involve many of the traditional income verification and documentation procedures. It allows you to lower your monthly payments by getting a lower interest rate or lower insurance premiums.

The process is sped up by the fact that many of the underwriting decision are automated and done "in-house" at the FHA lender. Here are some of the various elements that are not required for FHA streamline refinancing compared to other refinancing types:

• No income verification documentation will be needed
• No tax returns are required
• No employment verification is required
• No appraisal needs to be carried out on the home

Rather, borrowers must only be current on their existing FHA loan to qualify -- there can be no 30-day late payments in the last six months, and only one in the last year.

Beyond this, the only major requirement is that lenders confirm that there is what as known as a "net tangible benefit" to the borrower in a streamline refinance. Net tangible benefits may include a lower interest rate, a lower monthly payment, or even just getting rid of an FHA mortgage insurance premium.

Who Benefits from an FHA Streamline Refinance?

The streamline refinance is aimed at current FHA borrowers who are in a good financial place and can benefit from refinancing. It's not meant for those who are struggling to make their monthly payments and need to catch up on delinquent amounts.

That said, there are a few groups of borrowers who may find particular value in a streamline refinance:

• Borrowers who have seen their home's value increase and want to take advantage of new lower rates
• Borrowers who want to switch from an ARM to a fixed-rate mortgage
• Borrowers who want to get rid of their FHA mortgage insurance premiums

Each of these groups could see major benefits from refinancing via the streamline program. The biggest benefit, however, is likely for those borrowers who can see a decrease in their monthly payments.

If this is possible, and if your loan balance is greater than 80% of the current value of your home, it's likely a good idea to pursue a streamline refinance.

When an FHA Streamline Refinance Isn't Optimal

It's important to realize, however, that the FHA streamline refinance is not for everyone who has an FHA loan outstanding. For instance, if any of the following conditions apply to you, there's a strong possibility the FHA streamline refinance actually isn't the right way to go:

• Loan balance is less than 80% of the current value of your home, which would mean you don't have much equity to work with
• You're not current on your mortgage payments, or have multiple 30-day late payments in the last year
• You want to borrow more than the current value of your home
• Your payment or interest rate will not decrease as a result of the streamline refinance
• Your loan term will not improve after the refinance

In any of these cases, you may want to look into other refinancing options. An FHA cash-out refinance, for example, could be a better choice if you need to borrow more money or have less equity in your home. Talk with an FHA loan expert to figure out what's best for you.

A Few Unique Situations

There are just a couple unique situations we wanted to also mention here. In these cases, refinancing to a conventional mortgage from your FHA loan would typically be the preferable move -- but due to circumstances we'll go over, this may not be possible, and the FHA streamline refinance might be your only option. The two most common situations where this may happen:

• Recent job loss: If you've recently lost your job, this will mean you cannot verify income or employment -- and therefore, receiving a conventional loan refinance would be impossible. In these cases, an FHA streamline refinance may be the best way to go.
• Home value underwater: If your current mortgage balance is higher than the market value of your home today, that's a situation that mortgage professionals refer to as being "underwater." In this situation, again, obtaining a conventional refinance may not be possible -- but an FHA streamline could still be a possibility.

Importance of a Great Lender

If nothing else, all the above information should reveal to you just how important it is to work with a quality mortgage lender. If you're working with an inexperienced lender, for instance, they might not know all the information we just went over, such as the fact that an FHA streamline is not the best choice for everyone.

This is why it's so important to only work with the best lenders, who will be able to give you sound advice and help you through the refinancing process.

If you're interested in learning more about the FHA streamline refinance or any other FHA or VA loan programs, speak to our team at Integrity First Lending today.