Explained: FHA Streamline Loan

By Ashley Wirgau on June, 1 2020
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Ashley Wirgau

With our country still in the midst of a pandemic and economic shut-down, those bills coming due at month’s end get a little scarier with each passing day. Who couldn’t use a little streamlining when it comes to monthly payments right now? Countless Americans are still out of work or on reduced hours, making life’s expenses, especially those big mortgage payments, feel like an even bigger struggle. Thankfully, for borrowers whose home loans are currently backed by the FHA, the relief of a refinance is not as difficult as people might imagine.

While refinancing options are available to most homeowners, there is a specific type of refi path accessible to borrowers with existing FHA loans. The FHA Streamline Refinance Loan is a quick and painless process allowing homeowners the ability to reduce their monthly mortgage payment while bypassing the long, drawn-out (and sometimes expensive) traditional road to refinancing. For those folks in good-standing on their current home loan who are looking to save both time and money, it might just be the best solution.

But like with all things, there are some caveats. In order to apply for the FHA Streamline Refinance, borrowers must be current on their mortgage payments for at least the past 6 months. Additionally, the loan has to have been open for no less than 210 days, and the refinance amount cannot be larger than that of the original amount borrowed. There must also prove a net tangible benefit to the borrower in terms of lower monthly payments or reduced loan terms. Reduced loan terms, however, have certain requirements, as well:  the new interest rate must not exceed the present one, the amortization period must be shortened, and the Mortgage Insurance Premium (MIP) payment cannot be greater than $50 over the original MIP.

If these requirements are all met, this type of refinance can be a homeowner’s very efficient answer to their monthly money shortages. Those borrowers who have made all of their payments on time for the past year could also be eligible to refinance without the hassle of a full credit check or income verification process. To make matters even simpler, depending on the equity that has been built and the present loan balance, some borrowers might not even need another appraisal, saving even more money on the up-front costs to refinance.

The final advantage, especially in this season of social distancing, is that these types of refi opportunities do not typically require an in-person meeting with a loan officer. As much of the information is taken from the original mortgage, there are fewer hoops to jump through and little to no face-to-face contact; however, you might need to sign and return a document or two via postal service. With all this sitting around at home, though, each of us could benefit from a peek outside and a walk to the mail box.

The world of lending keeps turning even if other parts of our economy have slowed, so don’t feel that your dreams of refinancing have to be put on hold until things return to “normal.” The FHA Streamline Refinance Loan is actually a great option for borrowers looking to reduce the current financial stressors of large mortgage payments – and given the shortcuts available through this type of refi, those who are eligible would be hard-pressed to find a reason not to apply.