Is the FHA Streamline Right for You?

With an FHA streamline refinance loan you can refinance your existing FHA mortgage into a new FHA mortgage in order to take advantage of historically low interest rates. In some cases, an appraisal won’t be required, and the process can be completed relatively quickly.

Is it for you? Here are some things you need to know before you can make this important decision.

First, don’t count on walking away from the process with money in hand.

The FHA Streamline is a non-cash-out refinance, meaning that you can refinance the principal and some of the costs but can’t obtain cash. You must have what is called a net tangible benefit such as a lower interest rate or payment.

As with other types of mortgages, credit scores will drive this process. Depending on the lender, you will likely need a score in the 640 range.

Some lenders may go lower but will have other conditions. You also must be current on your FHA mortgage and must not have missed a payment in the last 12 months. Last, you need a debt ratio that is in line with guidelines.

Income is important in the process; in addition to good credit, your lender will want to know that you have the means to pay back the mortgage long term, even though you will have lower payments once the process is complete. That means you’ll have to provide the lender with pay stubs and tax returns, as you would with other mortgages.

Lenders will also want to verify your assets, as you may be asked to have money at closing for things like tax escrows.

Lenders are allowed to hold escrow money, often for 30 days. This means that you may have to give your new lender escrow money at closing, while your old lender will refund the money you’ve already given them.