With historically low interest rates, owners of Federal Housing Administration (FHA) mortgages may be wondering why there’s a lot of talk about streamline refinances.
An FHA streamline refers to a refinance of an existing FHA loan into another one, with streamline, or limited, documentation.
The requirements are pretty straightforward in that you must have lived in the property for at least six months and must have been current on all FHA mortgage payments for at least 12 months, regardless of where you have lived.
The main difference between a streamline refinance and either a traditional FHA refinance or an FHA purchase transaction is that in certain circumstances no appraisal is required on a streamline, regardless of the current market value of your home.
That being said, the new mortgage amount may not exceed the unpaid balance on the original mortgage.
This means that no closing costs may be rolled into the loan.
If you have a property that you had originally purchased with an FHA mortgage and have since moved into another one, making the original home an investment property, you may use only the no-appraisal option, meaning that you would be required to pay out of pocket for the closing costs.
Streamlines are referred to as rate and term, or no-cash-out, refinances, in that no cash may ever be taken out of the property, regardless of the original loan amount, or the balance, regardless of which appraisal option is used.
The interest rate on a streamline refinance mortgage must be better than on the loan that it is replacing.
Each type of lender has different minimums on credit scores, most of them higher than what the FHA requires.
However, it’s a good bet to assume borrowers will need a credit score of at least 640 to get an FHA streamline refinance done.