The FHA Streamline Refinance is a special mortgage product, reserved for homeowners with existing FHA mortgages. Homeowners with conventional mortgages via Fannie Mae or Freddie can’t use it. FHA Streamline Refinances are the fastest, simplest way for FHA-insured homeowners to refinance their respective mortgages.
The FHA Streamline Refinance program’s defining characteristic is that it does not require a home appraisal. Instead, the FHA will allow you to use your original purchase price as your home’s current value, regardless of what your home is actually worth today.
In this way, with its FHA Streamline Refinance program, the FHA does not care if you are underwater on your mortgage. In fact, the program encourages underwater mortgages. Even if you owe twice what your home is now worth, the FHA will refinance your home without added cost or penalty.
The FHA allows for unlimited loan-to-value with its Streamline Refi program — a huge help to FHA homeowners in California.
Except for this “no appraisal” benefit, the FHA Streamline Refinance is very much like other loan products. It’s available as a fixed rate or adjustable mortgage; it comes with 15- or 30-year terms; and there’s no prepayment penalty to worry about.
Another big plus is that FHA mortgage rates are as low with the Streamline Refinance program as with “regular” FHA loans.
FHA Streamline: No Verification of Job or Income
Another big plus is that the FHA Streamline Refinance is fairly easy for which to qualify.
In a sweeping guideline update, in April 2011, the FHA abolished verification for practically everything on an FHA Streamline Refinance mortgage application. Now, as written in the FHA’s official mortgage guidelines, the mortgage approval process for an FHA Streamline Refinance says:
- Employment verification is not required with an FHA Streamline Refinance
- Income verification is not required with an FHA Streamline Refinance
And, as mentioned earlier, there’s no need for a home appraisal, either.
Put it all together and it means that you can be (1) out-of-work, (2) without income, (3) have no home equity — and yet, you will still be approved for the FHA Streamline Refinance program.
That’s not as crazy as it sounds, by the way.
To understand why the FHA Streamline Refinance is a smart program for the FHA, we have to remember that the FHA’s chief role is to insure mortgages — not “make” them.
Therefore, it’s in the FHA’s best interest to help as many people as possible qualify for today’s low mortgage rates. Lower mortgage rates mean lower monthly payments, which in theory, leads to fewer loan defaults.
This is good for homeowners that want lower mortgage rates and for the FHA, but mostly for the FHA.
Are You Eligible for an FHA Streamline Refinance?
Although the FHA Streamline Refinance waives the “traditional” mortgage verifications of income and appraisal, as examples, the program does enforce minimum standards for applicants. The official FHA Streamline Refinance guidelines are below.
Perfect, 12-Month Payment History Is Required
The FHA’s main goal is to reduce its overall loan pool risk. Therefore, its number one qualification standard is that homeowners using the Streamline Refinance program must have a perfect payment history stretching back 12 months. 30-day, 60-day, and 90-day late payments are not allowed. Furthermore, loans must be current at the time of closing.
210-Day “Waiting Period” Between Refinances
The FHA requires that borrowers make 6 mortgage payments on their current FHA-insured loan, and that 210 days pass from the most recent closing date, in order to be eligible for a Streamline Refinance.
No Income Verification
The FHA does not require verification of a borrower’s annual income as part of the FHA Streamline process. Although we will verify employment, we will not require paystubs, W-2s or tax returns for approval.
Although FHA does not verify credit scores as part of the FHA Streamline Refinance program, most lenders apply a credit “overlay” guideline requiring a minimum credit score (usually around 640).
The Refinance Must Have “Purpose”
Streamline Refinance applicants must demonstrate that there’s a Net Tangible Benefit in the refinance; a legitimate reason for refinancing. Loosely, Net Tangible Benefit is defined as reducing the (principal + interest + mortgage insurance) component of the mortgage payment by 5 percent or more. Another allowable Net Tangible Benefit is to refinance from an adjusting ARM into a fixed rate loan. Taking “cash out” to pay bills is not an allowable Net Tangible Benefit.
Loan Balances May Not Increase To Cover Loan Costs
The FHA prohibits increasing a Streamline Refinance’s loan balance to cover associated loan charges. The new loan balance is limited by the math formula of (Current Principal Balance + Upfront Mortgage Insurance Premium). All other costs — origination charges, title charges, escrow population — must be either (1) Paid by the borrower as cash at closing, or (2) Credited by the loan officer in full. The latter is called a “zero-cost FHA Streamline”.
Appraisals Not Required
The FHA isn’t concerned about home value — it’s insuring your loan regardless. Therefore, the FHA does not require appraisals for its Streamline Refinance program. Instead, it uses the original purchase price of your home, or the most recent appraised value, as its valuation point. Homes that are underwater are still FHA Streamline-eligible.
FHA Streamline Refinance Mortgage Insurance Requirements
The FHA Streamline Refinance is an FHA-insured mortgage, and FHA borrowers are required to make two types of mortgage insurance payments — an upfront mortgage insurance payment paid at closing, plus an annual one split into 12 installments, paid with your mortgage payment each month.
With respect to mortgage insurance premiums, as of June 11, 2012, homeowners using the FHA Streamline Refinance program are split into two classes:
- Homeowners whose new loan replaces an FHA-backed mortgages endorsed before June 1, 2009
- Homeowners whose new loan replaces FHA-backed mortgages endorsed on or after June 1, 2009.
Beginning June 11, 2012, homeowners in the first class — those with “old” FHA mortgages to refinance — will pay markedly lower mortgage insurance than homeowners in the second class of borrowers.
FHA Streamline Refinance MIP Rates (For Loans Endorsed Before June 1, 2009)
If your existing FHA mortgage was endorsed prior to June 1, 2009, your mortgage insurance premiums have been “grandfathered”. You can refinance to the FHA Streamline Refinance program and pay reduced rates for both for upfront MIP and annual mortgage insurance premiums.
For an FHA Streamline Refinance that replaces a loan endorsed prior to June 1, 2009, the new FHA mortgage’s upfront mortgage insurance is equal to only 0.01 percent of the loan size or 1 basis point.
For example, if your new FHA Streamline Refinance is for $100,000 mortgage, the FHA will only assess a $10 upfront mortgage insurance premium (MIP) to be paid by you at closing. The FHA automatically rolls the $10 payment into your new loan balance.
Annual MIP is similarly cheap. For an FHA Streamline Refinance that replaces an FHA loan endorsed prior to June 1, 2009, the annual MIP is 0.55% annually, or 55 basis points.
The complete annual MIP schedule is as follows:
- 15-year loan terms with loan-to-value over 90% : 0.55 percent annual MIP
- 15-year loan terms with loan-t0-value under 90% : 0.55 percent annual MIP
- 30-year loan terms with loan-to-value over 95% : 0.55 percent annual MIP
- 30-year loan terms with loan-to-value under 95% : 0.55 percent annual MIP
15-year fixed rate mortgages with LTVs of 78% or less pay no annual MIP.
For an FHA Streamline Refinance that replaces a FHA loan endorsed prior to June 1, 2009 and for which the mortgage is a jumbo FHA mortgage in excess of $625,500, there is no additional mortgage insurance premium.
FHA Streamline MIP for Loans Endorsed on or After June 1, 2009
If your existing FHA mortgage was endorsed on, or after, June 1, 2009, your new FHA mortgage insurance premiums are the same as for all other FHA mortgage applicants.
For an FHA Streamline Refinance that replaces a loan endorsed on, or after, June 1, 2009, the new FHA mortgage’s upfront mortgage insurance is equal to 1.75 percent of the loan size, or 175 basis points.
For example, if your new FHA Streamline Refinance is for $100,000 mortgage, the FHA will assess a $1,750 upfront mortgage insurance premium (MIP) to be paid by you at closing. The FHA automatically rolls the $1,750 payment into your new loan balance.
Not all FHA homeowners will pay this full amount, however.
One great thing about the FHA Streamline Refinance program is that the FHA offers refund on previously-paid upfront MIP so long as you’re still within the first 3 years of your mortgage.
As an example, refinancing after 11 months grants a 60% refund, but waiting just one more month lowers that refund down to 58%. This is why is rarely a good idea to “wait to refinance” with the FHA. With the FHA Streamline Refinance, the sooner you refinance, the bigger your MIP refund.
You can review the FHA mortgage insurance refund chart below:
For an FHA Streamline Refinance that replaces a FHA loan endorsed on, or after, June 1, 2009, the annual MIP varies based on loan type and loan-to-value.
The annual MIP schedule, for loans with case numbers assigned on, of after, June 1, 2009:
- 15-year loan terms with loan-to-value over 90% : 0.60 percent annual MIP
- 15-year loan terms with loan-t0-value under 90% : 0.35 percent annual MIP
- 30-year loan terms with loan-to-value over 95% : 1.25 percent annual MIP
- 30-year loan terms with loan-to-value under 95% : 1.20 percent annual MIP
15-year fixed rate mortgages with LTVs of 78% or less pay no annual MIP. Mortgages made for $625,500 or more are subject to an additional 0.25 percent annual mortgage insurance fee.
A Los Angeles, California homeowner, therefore, using the FHA’s full $729,750 local loan limit for a low-down payment, 30-year fixed rate mortgage will pay annual mortgage insurance premium of 1.50% to the FHA, or $912 per month.
Note that mortgage insurance payments are included in the FHA’s Net Tangible Benefit requirement. You must lower your monthly payment by at 5 percent to qualify for the FHA Streamline Refinance.
This FHA Streamline Refinance information is accurate as of today, July 13, 2012. Please call Bill Lewis at (800) 224-9999 to get the latest program guidelines.