Why FHA Streamline Refinance Mortgages are Popular Now

Edit 4/30/09: FHA Streamline Refinance loans with a credit score below 620 are not currently available.

The FHA streamline refinance program is good news for homeowners who currently have an FHA insured mortgage. This program is the closest thing mortgage lenders have to a “no-doc” loan with decent interest rates. The basic premise of the program is simple; if borrowers are lowering their monthly payments, it must be good for them. FHA streamline refinances are a popular choice for a number of reasons.

Here are some of the features of the program:

1. For borrowers with FHA mortgages with a good payment history
   To be eligible for the FHA streamline refinance program, borrowers must currently have a mortgage insured by the Federal Housing Administration (An FHA loan). They must have a good payment history in the last 12 months. (Good generally means not late 30 days more than once in the last 12 months. Additionally, the current FHA mortgage must not be behind at the time of application.
2. FHA Streamline Refinance does Not use a Credit Score
   While the lender will run your credit report to check the mortgage history, the report is not used to determine eligibility for the FHA streamline refinance program. In other words, a borrower’s credit score isn’t used. Neither are late payments, collections or judgements on accounts other than the mortgage being refinanced.
3. No Income or Asset Verification
   Income and assets of the borrower are not verified for the FHA streamline refinance program. It is important to note that the customer must have a job and must have a bank account.
4. No New Appraisal
   A new appraised value is not used. Decreasing home values have been a barrier to refinancing for many borrowers in this environment. The FHA streamline refinance eliminates this barrier. Even if the customer’s home value is less than the amount of the mortgage, it’s still okay.
5. Secondary Financing Okay
   Second mortgages and home equity loans are fine in conjunction with the FHA streamline refinance program, even if they are above the value of the house. The second-mortgage lienholder (the bank that the customer makes payments to) must agree to subordinate the loan. That means that the second mortgage will take second lien position behind the new FHA mortgage.
6. 30 Year Fixed Interest Rates
   The FHA streamline refinance program is offered with 30 year fixed and 15 year fixed interest rates, which are very competitive. Often, the rates are as low as, if not lower than, conventional conforming interest rates.
7. Closing Costs can be Rolled into the Mortgage
   Borrowers can choose to roll their mortgage closing costs into their new FHA streamline refinance if they choose to. However, the new loan amount can not exceed the original FHA mortgage loan amount.
8. No Cost and Low Cost Mortgages Available
   FHA mortgage lenders have the ability to pay a portion or all of the closing costs incurred with the FHA streamline refinance program. Generally, borrowers pay a slightly higher interest rate than if they pay the closing costs directly, or roll them into the mortgage amount.
9. No Cash Out
   The FHA streamline refinance program does not allow for cash out.
10. Borrowers Must be Bettering their Situation
    The FHA streamline refinance must result in a lowering of the borrowers principal and interest payments.

For borrowers that have an FHA mortgage currently, the FHA streamline refinance program may be a good way to lower their mortgage payments.