A Streamline Refinance loan through the FHA will lower your rate and payment. If you qualify, taking advantage of today’s low rates through a FHA streamline refinance will be a smart and easy decision. Here’s some rules that the FHA has established for these loans.
FHA Requires the New Payment Result in a Net Benefit
It sounds obvious doesn’t it? The new payment should be less than your current one, and the savings be substantial enough for you to refinance. In fact the FHA has made this a rule for any FHA Streamline refinance. You must benefit from the refinance. Your new FHA loan must meet the new requirements of new payment savings. This test is done by comparing the Principle, Interest, and Mortgage Insurance of your current loan to the new proposed FHA loan. If the savings test passes FHA guidelines, then this will be the first step towards qualifying. The new payment must save you a minimum of 5% of your current payment. It’s an important step to take at the start of the refinance process because, while a half percent reduction in interest rate my seem enough of a rate reduction to qualify, many times it will fail the benefit test. A rule of thumb today suggests that if your new rate is 1 percent or lower on your new FHA loan, it will probably pass the benefit test.
Employment & Income Verification
You need to be currently employed to qualify for a FHA Streamline refinance. Even if you have excellent credit, you will still need to be employed. A Streamline Refinance typically does not require income verification. Typically debt to income ratios are not calculated. What does this mean for you? Your employment will be verified, but your income won’t be. Most streamline refinances do not even ask you for a pay-stub.
Appraisals Not Required
Unlike traditional Conforming Refinances, a FHA Streamline Refinance typically will not require an appraisal. This will save you $400 – $450, which is the going rate for a third party appraisal of your home. Not needing an appraisal will also speed up the refinance process.
FHA Streamline Refinancing is an excellent way to lower your monthly payments and interest rate. FHA rules require these loans to offer a tangible benefit to the borrower, and the criteria is strict when it comes to those benefits -but the end results are definitely worth it.