An FHA Streamline could help qualifying clients in an FHA loan significantly lower their monthly payment by lowering interest rates, the mortgage insurance premium (MIP) or both. What’s more, qualification documentation often isn’t too cumbersome and an appraisal may not be required.
This post will give you everything you need to know if you’re looking for an easier process for refinancing an FHA loan.
What Is The FHA Streamline Program?
An FHA Streamline enables those in existing FHA loans to lower their monthly payment or change their term regardless of whether they have any existing equity built up in their home.
Depending on your situation, there are often reduced requirements associated with FHA Streamlines because you’ve already proven creditworthiness with your existing FHA loan. This is the primary benefit of this option. Let’s go over the pros and cons of an FHA Streamline now.
Pros And Cons Of An FHA Streamline
An FHA Streamline has several benefits as well as a couple disadvantages. Let’s run through them.
Pros Of An FHA Streamline
An FHA Streamline has the following benefits:
- Reduced mortgage insurance costs: The first time you get an FHA loan, all loans originated after January 26, 2015, feature an upfront premium of 1.75%. The annual mortgage insurance premium varies based on your down payment, but if you made the minimum down payment when you took out the loan, the annual premium is 0.85% of the loan amount. When you do an FHA Streamline, regardless of the amount of equity you have, the upfront mortgage insurance premium is just 0.01% of the new loan amount and your annual mortgage insurance rate is 0.55% of the total loan.
- Upfront mortgage insurance premium refund: If you refinance into a new FHA loan, Streamline or otherwise, you can get a partial refund of your previous upfront MIP. The refund amount does go down the longer you wait to do a refi. The refund can also vary depending on the details of a given transaction, so feel free to speak with a Home Loan Expert about the specifics of your situation.
- An appraisal may not be required: The situation can vary, but many times an appraisal isn’t required. This is because the Federal Housing Administration (FHA) will let you use this program if you qualify regardless of the amount of equity you have. This also applies even if you owe more on your home than it’s worth because the FHA knows it will be easier for you to make your payments if you have access to lower mortgage insurance payments and/or lower interest rates.
- FHA Streamlines often have reduced documentation: This is another area that depends a lot on your personal situation, but there’s typically some level of reduced documentation involved in getting an FHA Streamline. This includes limited verification of employment and income, among other things. Again, the FHA knows based on your payment history that you’ve been able to handle your loan so far, so there may not be as much paperwork involved. This helps speed up the process which in turn saves you money faster.
Cons Of An FHA Streamline
There’s really only one negative to an FHA Streamline, but it’s something you should keep in mind.
Although FHA Streamlines feature reduced mortgage insurance payments, they’ll still be around for a while and potentially stick around for the life of the loan.
If you have equity of 10% or more at the time you close your FHA Streamline, you’ll pay MIP for 11 years. If the equity is less than 10%, MIP is around for as long as you have your loan.
“Life of the loan” is a key phrase here. You can refinance into a conventional loan once you reach 20% equity and you won’t have to worry about paying for mortgage insurance again. This is a good option for a lot of people.
Do I Have To Pay Closing Costs On An FHA Streamline Refinance?
Because you can only finance your current principal balance plus a limited amount of existing MIP into the loan, you can’t finance closing costs into the loan balance. However, you do have the option of taking a lender credit.
A lender credit works like this: You agree to take a higher interest rate in exchange for the lender paying some or all of your closing costs. This is one way to keep your upfront loan costs at bay even if you have to pay a little bit more over time.
It’s also worth noting that closing costs on an FHA Streamline could be somewhat lower because there’s no appraisal required.
FHA Streamline Refinance Guidelines 2019
An FHA Streamline from Quicken Loans has the following requirements when it comes to qualifying:
- You must be in an existing FHA loan.
- You can’t take any cash out with an FHA Streamline.
- The new loan amount can’t exceed the existing principal balance plus any upfront MIP that might be built into the loan along with a limited amount of MIP that may be due for your existing loan on pay off.
- If your loan is currently serviced by Quicken Loans, the minimum median FICO®Score to qualify is 580 or higher. If it’s a new loan to us, the minimum score is 640.
- It must be a one or two-unit primary residence.
- Your debt-to-income ratio may vary depending on your qualifications as well as local regulations where you live, so speak with a Home Loan Expert about your options.
- You have to be current on your loan.
- The FHA requires that you’ve made at least 6 months’ worth of payments on your previous loan before applying for an FHA Streamline. At least 210 days must have elapsed between the due date of the first payment on your existing loan and the first payment on your new loan.
Although these represent the requirements of Quicken Loans, other lenders may have different guidelines that apply.
What Is The Current FHA Streamline Interest Rate?
A common question is the type of interest rates you would get with an FHA Streamline. The best answer to this is that the interest rates themselves are similar to those you’d get with a regular FHA loan.
You can read a lot more about this in a few other posts I’ll link below, but interest rates are set based on a combination of market factors in addition to your personal financial and credit characteristics. Let’s briefly touch on these before moving forward with a deeper dive into FHA streamlines.
Mortgage-backed securities (MBS) are made available to investors by agencies that guarantee the mortgages. FHA is one of these agencies. Let’s say the FHA wants to package up an MBS to sell to investors. It’ll take a pool of similar loans, maybe 1,000 or so, and make them available. These loans might have median FICO®Scores of 640 or higher with down payments of 3.5% for 30-year loans with fixed interest rates.
So how do market factors play into this? MBS pools are sold on the bond market, which is filled with what are considered relatively safe investments. Mortgages are often considered some of the safest assets out there. It’s generally assumed that you’re going to make paying for your home every month a top priority and cut back on other things first. So bonds are safe, but you may not get as much reward as you would with riskier assets like stocks.
The government sometimes plays a role in the market if the Federal Reserve decides to buy assets. When this happens, because there are more buyers in the market, the yield on mortgage bonds doesn’t have to be as high and rates are lower. If people start investing more in stocks or the government isn’t purchasing as many MBS, rates tend to go up as yields rise to attract more investors.
It’s often said that bad news is good news for mortgage rates. That’s because people are more likely to invest in high-risk, high-reward items like stocks if they think future prospects are good. If people think that things are about to take a bit of a dive, they look for the guaranteed return that’s provided by bonds.
That explains the way base interest rates are set, but there’s also a personal element to this as well. Even though loans from all the major mortgage investors are in one way or another directly backed or sponsored by the government, different loans do represent different risk profiles. The two biggest factors in determining your personal interest rate above and beyond the base are your median FICO®Score and the size of your down payment. In both cases, the higher the better because it represents less risk for an investor. Less risk means a lower interest rate, while investors might ask you to pay a higher premium if your credit or equity aren’t the highest.
You can also shop around because different mortgage lenders may charge different rates or the rate may be attached to different amounts of prepaid interest points. It’s smart to do some research to get the best deal.
If you’d like to get an idea of where rates are generally at, you can view our current rates.
To look into your options, you can get started by checking out our refinance calculator. If you feel good about moving forward, you can do so online with Rocket Mortgage® by Quicken Loans or you can give us a call at (800) 785-4788.
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