Have you weighed the pros and cons of refinancing your mortgage? There are plenty of reasons to go both ways, but sometimes you can overlook the most obvious reasons to refinance, especially when you are eligible for the FHA Streamline Refinance. This program makes it possible to lower your interest rate and payment with very little work to get qualified – according to the FHA, your original qualifying documents are usually enough to qualify for the streamline refinance. Some lenders might take the process a few steps further in order to ensure that you truly do qualify, but overall, the streamline refinance helps you to save money every month. If you are not convinced that you should refinance your FHA loan, here are three reasons t consider it.

Your Loan Amount is Large

If you borrowed a large amount of money to purchase your home, chances are your outstanding balance is still rather high if you purchased the home within the last 3 years. If that’s the case, even changing your interest rate slightly can make a dramatic change in your payment, saving you money every month. If you want to use the standard formula to see how long it would take you to recoup the closing costs that you must pay in order to refinance, you could take the savings you would gain every month and divide it by the total amount of closing costs. Let’s say for example that you will save $150 per month on your new loan and the closing costs total $3,000. It would take you 20 months to recoup the costs and start benefiting from the refinance. If you plan on staying in the home for at least 2 years, you would come out ahead; obviously the longer you stay in the home, the more you would benefit and the larger the loan amount, the more you will likely save and the quicker you will recoup the closing costs.

The Lender will Pay your Closing Costs

Believe it or not, sometimes lenders are willing to pay your closing costs for you. This is possible because the lender makes the profit off of the interest you pay on the loan. Depending on your situation, a lender might be willing to cover the closing costs for you, making it a no-brainer to use the FHA Streamline Refinance since you will lower your payment and not have to pay anything out of pocket with the exception of the upfront mortgage insurance premium. To make the situation even more lucrative, if you are refinancing within 3 years of obtaining the original FHA loan, you will get a prorated refund of the MIP you paid on the original FHA loan, allowing you to pay even less money out of pocket.

You are Refinancing into a Shorter Term

Technically, the requirements of the FHA Streamline Refinance include the fact that you have to lower your payment, but there is an exception – if you shorten your loan term, you can still use the program. Shortening the term saves you the most money in the long run, so it is a win-win for you and the lender. For example, if you refinance from a 30-year term to a 15-year term, you knock off 15 years off of the interest you would pay on the loan, which would amount to a large amount of savings.

The FHA Streamline Refinance offers you many benefits, even if you only plan on staying in the home for less than 5 years. Every situation is obviously different, but you can determine if it is right for you with a few quick calculations and determinations. When you shop around for a refinance program, negotiate with various lenders to see if any are willing to cover your closing costs for you, or at the very least, who will offer the lowest amount of closing costs to help make your choice to refinance beneficial.

If you already have a mortgage and you want to refinance, it might seem like a good idea to just go with the same lender. This might have some value, depending on your exact circumstances, but you should know that new lender or not, you are starting over again. Even your current lender will require you to provide all new documentation including new paystubs, your most recent W-2s, and your most recent bank statements. They will also pull your credit again. Just because you used them for your current mortgage does not mean that everything is the same in your life. So much could have changed financially that could alter your ability to take on a new mortgage. If starting over is not enough incentive to shop around, here are few other reasons.

Better Programs

Not every lender offers the same types of programs. Take a look at your current financial situation – has anything changed since you took out your current mortgage? Maybe you changed jobs or your credit score dropped – no matter how things have changed, it means you will likely need a different loan program. Even if nothing changed, the chances of the same loan program being available from when you took out your current mortgage are slim to none. Mortgage programs change often as the regulations change. Individual lenders are constantly adapting to the changes and mixing up the offers they have for borrowers. Sticking with the original lender you used could limit your offerings causing you to miss out on a great program that would work best for your situation.

Save Money

It is up to the discretion of each lender to determine what they are going to charge on your loan. One lender might have much higher charges than another. You will not know who offers what charges until you apply for the loan. If you apply for a mortgage with several lenders within a few week period, your credit score is only hit for one inquiry, so it is worth it to shop around. While lenders are restricted by the Qualified Mortgage Rules regarding how much they can charge you, they have some leniency as long as their charges are the same across the board for every borrower.

Better Chance of Approval

If you are not a straightforward borrower, meaning that you have many different issues with your loan application that are not like the standard borrower, then it pays to shop around with different lenders. For example, if you are self-employed, the loan programs greatly differ for you and each lender might have something different to offer. Lenders that keep the loans on their own books might have more flexible guidelines than a lender that sells everything into the secondary market and is regulated by the Qualified Mortgage Rules. In other cases, maybe your credit score is borderline or your debt ratio requires an exception but you have compensating factors to make up for that risk. Every lender looks at each situation differently, which makes it well worth it to see what other lenders have to offer.

Shopping around for a mortgage might seem like an inconvenience because of the amount of paperwork you have to fill out and the paperwork you have to provide the lender, but it can give you the best rate and program for the loan you need. Sticking with the original lender of your current loan is not always the only way to go. This is even true if you are taking advantage of the FHA Streamline program and refinancing your FHA loan into a lower rate. Every lender has different offerings, so take the time to shop around and get the best deal available to you!

The FHA Streamline Refinance program is a special program reserved for homeowners that already have an FHA loan. It gives these homeowners the ability to refinance into a lower rate and possibly lower their mortgage insurance premium if a significant portion of the outstanding principal was already paid down. Many borrowers with an FHA loan benefit from the FHA streamline program because it does not require the same verifications that the original FHA loan required. The largest benefit is that it does not require a new appraisal – the original appraisal can be used for qualification purposes. This means that even homeowners that are drastically underwater (owing more than the home is worth because the value dropped) can refinance into a lower rate and save money. A few other perks include the lack of need for credit, income, employment, or asset verification in order to qualify. Basically, as long as you can show a financial benefit (your new payment will save you money) you will get approved for the new FHA refinance. As with any loan, however, each lender can impose their own requirements. If you find a lender that will not approve you for the streamline program, you have the option to apply with a few other lenders, in the hopes of finding one with fewer lender overlays in place.

Basic FHA Streamline Refinance Guidelines

The basic requirements for the FHA Streamline Refinance are very simple:

• You must have an FHA loan right now
• Your mortgage history must be perfect for the last 3 months (no late payments)
• Only one late payment is allowed in the 9 months preceding the last 3 months
• 6 payments must have taken place on the current mortgage before the refinance

If you meet these requirements, you are qualified as far as the FHA is concerned. Remember, however, that the FHA is not funding the loan. It is their job to insure the loans in order to provide a greater number of people with the ability to own a home. This does not mean that every lender will readily hand out a streamline refinance without further evaluation.

Role of your Credit History and Credit Score

Technically, your credit report is not required in order to obtain an FHA Streamline Refinance. This is according to the FHA, but most lenders will pull your credit and view the score in order to ensure that you have continued to exercise financial responsibility. Most lenders will not accept a loan application for a credit score below 620. Some lenders may grant an exception, but you will have to prove dire, one-time circumstances to ensure that they can overlook the low score. In addition, some lenders will look beyond your housing history, ensuring that you have no other late payments reporting. However, in general, as long as your last 3 months of mortgage payments were made on time and no more than one late housing payment was made in the 12 months preceding the application, you should be a good candidate for the program.

Role of your Income

Your debt ratio was probably a hot topic during the initial loan process. The lender probably thoroughly evaluated your income, employment history, and how it related to your current debts. They calculated your debt-to-income ratio to make sure it was in line with the FHA guidelines, which hover around 43% on the back end, meaning that your total debts cannot be more than 43% of your gross monthly income. The FHA Streamline Refinance does not verify your income, however. This means that you could be unemployed or have changed jobs recently and still have the opportunity to refinance. This is an area that some lenders will agree with the FHA and ignore, while others will still want to verify that you have an income and can continue to make payments. Because the streamline refinance lowers a borrower’s payment, many lenders are more lenient regarding verifying income and/or employment since a lower payment is easier to afford no matter the situation.

Maximum Loan Size

One of the largest stipulations of the FHA Streamline Refinance is the loan size. The purpose of the program is to lower your payment, which means your loan amount should not exceed the amount of the outstanding principal. The only exception to this rule is the addition of upfront mortgage insurance and the cost of one month’s worth of interest, so that you do not have to bring that amount to the closing. The maximum loan amount is an FHA rule, which means lenders cannot go around that stipulation, enforcing their own guidelines on this matter.

FHA Streamline Refinance Closing Costs

A major difference between the FHA Streamline program and the standard FHA loan is how the closing costs are handled. On your original FHA loan, you may have had the opportunity to roll your closing costs into the loan, allowing you to bring little to no money to the closing table. The Streamline refinance, however, does not allow any closing costs to be wrapped into the loan amount as the loan amount should not increase higher than your outstanding principal aside from the mortgage insurance you must pay upfront. The only way around this matter is to obtain a Zero Closing Cost loan, which means the lender is paying your closing costs, but this comes at a price. The closing costs are not just paid by the lender out of the kindness of his heart – he will pay them in exchange for you accepting a higher interest rate in order for him to make a higher profit. Because the point of the Streamline refinance is to lower your payment, this is generally not an option for borrowers.

Mortgage Insurance (FHA MIP) Requirements

Mortgage insurance is always a requirement of any FHA loan, including the FHA Streamline Refinance. The amount you pay this time around might be a little different, depending on when your first FHA loan was originated. If it was before June 1, 2009, you will pay the following rates for a 30-year term:

• Upfront MIP – .01 percent of the new loan amount
• Annual MIP – .55 percent of the new loan amount

If your original FHA loan originated after June 1, 2009, you will pay the following rates:

• Upfront MIP – 1.75 percent of the new loan amount
• Annual MIP – 0.85 percent of the new loan amount

These figures are based on 30-year terms with 5% or less put down on the home and loan amounts lower than $625,000. If you put down more than 5% or you opted to have a new appraisal performed on the home and it is found that you owe less than 95% of the value of the home, you would pay a reduced rate of .80 percent for annual MIP, if the loan amount was under $625,000.

Higher loan amounts, meaning those that reach over $625,000 pay different rates including:

• Less than a 95% LTV, pay annual MIP of 1%
• Greater than a 95% LTV, pay annual MIP of 1.05%

If the term of your loan is 15 years, the following rates prevail for loan amounts less than $625,000:

• Less than a 90% LTV, pays annual MIP of 0.45 percent
• Greater than a 90% LTV, pays annual MIP of 0.70 percent

If the term of your loan is 15 years and the loan amount is greater than $625,000, the following rates apply:

• Less than 78% LTV, pays an annual MIP of 0.45 percent
• LTV that is between 78% and 90%, pays an annual MIP of 0.70 percent
• LTV greater than 90%, pays an annual MIP of .95 percent

Mortgage Insurance Refunds

If you are applying for the FHA Streamline Refinance within 3 years of the origination of the original FHA loan, you will receive an MIP refund of the upfront mortgage insurance you paid. The amount is prorated depending on the amount of time that has passed since the original loan was taken out. Because you must wait 6 months to refinance into a streamline loan, the maximum refund you would be eligible for is 70% of the upfront MIP you paid on your first loan. The amount you receive back decreases by 2 percent every month that passes, with the final amount ending at 10% on the 36th month following your loan origination.

Last, but not least, is the option to have MIP cancelled on your loan. This only occurs if the new refinance is 90% of the value of the home. If this is true, you only pay MIP for 11 years and then it is automatically cancelled. This is the only time that the insurance can be cancelled. Borrowers that feel that their home value has increased enough may opt to pay for a new appraisal to see if they hit that 90% threshold, allowing them to save even more money in the long run.

Remembering that every lender has their own requirements, you may want to apply for the FHA Streamline Refinance with several lenders. The guidelines posted above are strictly those that the FHA requires. These are the minimum requirements that the FHA will allow in order to insure the loan. The lender is the one that is providing the funds to you, which means they may want you to have an appraisal or may want to evaluate your credit or income. Some lenders are more lax than others when it comes to these loans, so if you don’t want to pay for an appraisal or you know your credit score has dropped since the original loan and you don’t want to be declined, shop around with other lenders that have different lender overlays in order to obtain your streamline refinance.

Remodeling a home can get rather costly, which makes many homeowners skip the things they want to do most to their home. If you don’t have enough cash to make changes you desire and the changes are less than $35,000, you may qualify for the FHA 203K Streamline Loan. This loan, which is backed by the FHA, is a less complicated version of the standard 203K which requires the implementation of a loan consultant, many approvals by the bank before work can be completed, and specific draw periods that all contractors must agree to accept. The streamline version of this loan is a very relaxed and easy way to get the money for renovations you desire whether you are refinancing a current FHA loan or you are in the process of purchasing a home that needs some renovating in order to make it look how you would like it to look.

Basic 203K Streamline Refinance Guidelines

The FHA 203K Streamline Loan is backed by the FHA, which means all FHA guidelines prevail for this loan. The FHA sets their standards in order to insure the loan and then lenders may put their own requirements over those guidelines in order to make the loans less risky. According to the FHA, the following guidelines must be followed:

• Minimum credit score 580
• Minimum down payment of 3.5% of the purchase price of the home
• Stable income and employment must be documented with 2 current paystubs and the last two years’ worth of tax returns and/or W-2s
• Maximum debt ratio on the back-end is 43%, which means the total monthly debts cannot be more than 43% of the gross monthly income you bring in each month
• Any bankruptcies must be discharged for at least 2 years
• Chapter 13 Bankruptcies must be paid or currently being paid and in a timely fashion
• Foreclosures and short sales usually need to be 3 years behind you unless you have special circumstances such as a sudden injury or illness that made it impossible to make a living
• You must live in the property you are using the streamline program on
• Your mortgage history over the last 12 months must not contain more than 2 30-day late payments

These requirements, which are applicable for standard FHA loans are what lenders require for the FHA 203K Streamline program as well. As stated above, some lenders may require additional stipulations. For example, some lenders will not go as low as a 580 credit score because that demonstrates a lack of financial responsibility; many lenders will not go below 620 or 640, depending on their ability to take risks. Other lenders will require a lower debt ratio or will not allow self-employed borrowers – every lender has their own guidelines, which is why shopping around with various lenders is essential for this program.

Recent 203K Mortgage Program Changes

The FHA 203K Streamline Loan offers you the ability to make a large number of changes without the need for a loan consultant, architect, engineer, or any drawn up plans. Basically, any major changes to the home that would change the structure or require major construction, such as a room addition are not allowed. The Streamlined program is meant to provide you with an easy way to make minor changes to a home. Some of the approved changes include:

• Fixing or replacing the roof and/or gutters
• Replacing the furnace or air conditioner
• Replacing or repairing plumbing
• Changing out the flooring type (adding hardwood or changing the carpeting)
• Painting the home whether inside or outside
• Making energy efficient changes
• Remodeling a kitchen without making structural changes
• Weatherizing a home
• Adding a porch or patio to the exterior of the home
• Finishing a basement as long as there are no structural changes
• Repairing or replacing the septic system
• Making changes for a disabled person
• Stabilizing lead paint
• Replacing or repairing windows

Repairs not Allowed for the Streamline 203K

A few repairs that are not allowed under this program include:

• Landscaping
• Pools
• Any structural changes
• Any changes that require written plans
• Any changes that take longer than 6 months

The Disbursements

A major difference between the standard 203K and the FHA 203K Streamline Loan is how payments are disbursed. The streamlined loan only allows for 2 payments: one at the beginning and one upon completion of the work. The first payment cannot be more than 50% of the full cost of the repairs and is strictly meant to help the contractor obtain materials and other necessary items to begin the work. The final payment, including any reimbursement for permits that were obtained, will be released when all liens from contractors and sub-contractors have been released from the home and the home passes a final inspection (unless the changes total less than $15,000, then an inspection is not required). The payments are made directlyto the contractor that performed the work from the mortgagee, unless you have arranged to do the work yourself, which requires approval by the mortgage company. You must be able to prove that you are capable of the work physically as well as have the knowledge to perform the work appropriately. If this is the case, no labor fees are paid, strictly the material costs are reimbursed.

FHA 203K Inspections

The FHA Streamline 203K Loan differs from the standard 203K loan in its need for inspections. The standard 203K contains a great deal of paperwork as well as periodic inspections before any more money is disbursed and before anything can be signed off on. The streamlined program only requires one inspection, at the completion of the work and only if the cost of the work exceeds $15,000, but is less than $35,000. If the cost is below $15,000, the lender is able to take your word for it that the work is done to your satisfaction. You must also sign a release stating that the work is complete and up to your standards before the money can be disbursed to the contractor.

203K Streamline Appraisals

Every FHA loan requires an appraisal, and the FHA 203K Streamline loan is no exception. What is different about this appraisal versus a standard appraisal is that the appraiser will come up with two values for the home. The original value will be the home as it stands right now with no changes. The second value will be the forecasted value after all planned changes are made. Sometimes the appraisal for this loan will include required changes that the appraiser sees that would make the home insurable by the FHA. If there are changes that are necessary, they must be done first before any other changes can be made or the loan will not be insured by the FHA.

Max Loan Amount

The loan amount for the 203K loan will be based off of the appraisal as the borrower is able to add $35,000 of changes to the home. That $35,000 must include all fees, required changes to meet FHA regulations, and the 10-15% contingency reserves necessary for any last minute emergency changes that come about during the process.

Choosing the 203K Contractor

The lender does not have a large say in which contractor you use for the work on a FHA Streamline 203K loan, but they do need to approve the work estimates to ensure that they are within the reasonable and customary costs for the work being completed. The contractors will also need to prove that they are properly licensed and insured in order for the loan to be approved. Each estimate provided must include detailed information regarding

• Work plan
• Cost for each job being completed
• Contractor’s credentials
• Contractor’s experience
• References upon request

Once the contractors are chosen and the estimates are approved by the lender, the costs must be put in writing and signed by the contractor, stating that he agrees to do the work for the specified amount in the designated time frame.

The FHA 203K Streamline Loan is a great way to make minor changes to your home, whether you own it now or you are purchasing it. With very little paperwork and the ability to make up to $35,000 in changes, the ability to transform your home with a government backed loan is a great way to get the home you desire.

The VA Streamline Loan is also known as the Interest Rate Reduction Refinance Loan or IRRRL. The name speaks for itself; the refinance loan is meant to help you lower your interest rate, allowing you to save more money every month. The program is available to veterans that already hold a VA loan and that are able to lower their interest rate on their fixed loan or to refinance from an adjustable rate loan to a fixed rate loan. Since the VA is very into ensuring that our veterans can afford not only their mortgage, but their daily living expenses too, this program is very helpful in getting you to that point.

Basic VA Streamline Mortgage Guidelines

The basic requirements of the VA Streamline Loan are similar to those of the original VA loan you obtained. The first step is ensuring that you are entitled to the loan, which if you have a VA loan now, you are entitled. Because you can only use that benefit once at a time, you will be reusing the same benefit that you used to obtain the original loan. The refinance must be on the same loan you obtained with the benefit and you must only refinance into another VA loan. The same Certificate of Entitlement you used on the original loan will be used to qualify you on this loan as well.

As with most streamline loans, the requirements for the VA Streamline Loan are very simple. One key difference in the requirements for the IRRRL is that you cannot use the proceeds of the new loan to pay any other loans, including a second mortgage. If you have taken out a subsequent mortgage on the home, the lender for that loan will have to agree to subordinate, or take 2nd position, in order for you to qualify for the program and to use your benefit again. In addition to that unique requirement, the following stipulations must be met:

• Your credit history must be clean for the last 12 months. For qualification purposes on this loan this means that you cannot have more than one 30-day late payment in the last 12 months. The VA is not concerned so much with the score that is reporting on your credit report, but more the history that is reporting. If there are more than one late payments, you will have to wait until you are 12 months out from the last late payment in order to qualify. Some lenders will have a minimum credit score that they will allow for the program, but every lender is different in that respect, so shop around if one lender does not approve your credit score.
• You will not need to obtain a new appraisal, as the lender can use the original appraisal used to purchase the home. This is good news for many homeowners that are currently underwater on their loans, enabling them to refinance into a lower rate and possibly gain equity back in the home faster. It is important to note that many banks will still require an appraisal, so if you are underwater, you may need to shop around with other lenders.
• Your employment status is not typically an issue when applying for the VA Streamline Loan. The VA does not require you to provide W-2s or paystubs since you are supposed to be lowering your payment, making it more affordable than your current loan. Some lenders will implement an overlay just to protect themselves and to ensure that you are gainfully employed before providing you with the new loan though.
• In general, you should live in the home you are trying to refinance with the IRRRL program, but it is not a necessity per se. The lender and VA will use their own discretion to determine if you still qualify if you no longer live in the home. Everyone has to provide proof of occupancy prior to applying for the refinance however. An example of a veteran that does not need to be living in the home to qualify is one that had to relocate for his job and is now renting out the home that has the VA financing.

VA Streamline Maximum Loan Amount

The loan amount for the VA Streamline Loan is reserved for the outstanding principal plus any closing costs, the funding fee, and any outstanding fees on the current loan. The exception to this rule is any borrower that wants to make energy efficient changes to their home. The changes must be completed within 90 days prior to the closing of your IRRRL. The cash you receive in hand will be a direct reimbursement of the energy efficient changes you made.

VA Loan Funding Fee

The funding fee is a standard fee charged on every VA loan unless you became disabled in the line of duty. For the VA Streamline Loan, the standard funding fee is 0.5% of the loan amount. This amount can be paid in cash at the closing or can be rolled into your loan amount along with your closing costs from the lender and title company in order to minimize the burden that the refinance puts on your finances.

Increased Payment after IRRRL

In some rare cases, your payment will go up as a result of the IRRRL, but is often for good reason. The following examples showcase when a payment may go up and still get approved by the VA:

• Changing from an adjustable rate to a fixed rate – This is the most common reason for a payment to increase. Adjustable rates are often lower than the fixed rate initially, but they are also much riskier because of their ability to change yearly and with no prediction on how they will change. As long as the new payment does not exceed a 20% increase, nothing different will need to be done. If it does exceed 20%, chances are you will need to prove your income, employment, and possibly have an appraisal completed.
• Changing from a 30-year term to a 15-year term can also increase your rate since the amount of principal you pay each month will increase. Because a lower term is less risky than a longer term, the payment increasing is typically approved by the VA and the lender.
• Energy efficient changes are also considered an acceptable reason for an increased payment since the energy efficient changes are supposed to help lower your utility bills and possible repairs around the home, increasing your disposable income.

In general, as long as you are lowering your payment or decreasing the riskiness of your loan and refinancing from one VA loan to another the VA Streamline Loan is easy to obtain as the VA wants to make your mortgage payments as easy as possible to afford. Remember, if one lender turns you down, don’t be afraid to shop with other lenders as each bank will have different requirements that they use in addition to those that the VA has set up.

FHA Streamline rates have been known to be amongst the lowest rates available this year. The program is simple to qualify for and the ability to save a significant amount of money each month is reachable. Because the FHA Streamline program does not require an appraisal, income/employment verification or even verification of your credit, you will likely be able to obtain the refinance if you already have an FHA loan. The Streamline program is meant to provide you with today’s low rates without the headaches of qualifying for a new loan. As long as your housing payment history is clear for the last 3 months and has a maximum of one 30-day late payment in the 9 months preceding that, you will be a good candidate for this loan.

As already stated, FHA rates are among the lowest available, especially today. If you obtained your original FHA loan a few years back, chances are rates are much lower now. Even a difference of one eighth of a point can save you a significant amount of money on a monthly and yearly basis. If you add up those savings over the life of the loan, which is typically 30 years, you could be saving thousands and thousands of dollars in the end.

How FHA Streamline Rates are Determined

Contrary to popular belief, FHA rates are not set by the FHA themselves, but rather by the market. The economic indicators as well as the secondary market play a vital role in the basic interest rates that are offered. In general, the better off the economy is, the higher the FHA Streamline rates will be and the worse the economy gets or even the outlook for the economy, the lower the rates will become. The entire philosophy is tied into the rate of inflation. If the outlook for the economy is good, employment rates are up, and spending is high, the government does not need to step in and stimulate the economy. On the other hand, if the economy is sluggish, the Fed needs to step in and boost things up; they do this by lowering the interest rate provided to the banks to borrow money, making it easier for money to exchange hands and for consumers to purchase homes.

How FHA RefinanceRates Change

Not every borrower is going to receive the same FHA Streamline rate though. There is the base rate, but that rate is very rarely provided to borrowers unless they are the “perfect” borrower, meaning perfect credit, perfect debt ratio, and with an adequate investment in the home. Since the “perfect” borrower does not often exist, there are many factors that you should know to understand how the interest rate you are provided came about. It is also important to know that your rate could change from one lender to another based on the riskiness of your loan and what the lender is willing to take on at any given time. Lenders need to balance out their portfolio with risky and non-risky loans; if you go to a lender that has a large amount of risky loans, they are not going to be willing to take on many more risky loans or if they do, they are going to adjust the interest rate accordingly in order to ensure they make a profit while you are paying on the loan in case you do default in the future.

Influencing Factors

• Credit history – This is often the largest determination of the final interest rate you are provided. The higher your credit score is, the lower the interest rate the lender will charge you. For example, a borrower with the 580 FHA minimum credit score for a 3.5% down payment will pay a higher interest rate than a borrower with a 660 credit score. In general, an excellent credit score is considered around 760. This means a borrower with this score or higher will have a better chance at obtaining the lowest FHA interest rate available with no adjustments. A borrower with a riskier score, say around 600, would have a higher rate to make up for the riskiness of the loan.
• Debt ratio – Your debt ratio plays an important role in the riskiness of your loan as well. The more debt you have compared to your monthly income, the higher the likelihood of you defaulting on your loan becomes. The general “good” debt ratio is around 35%. Because the FHA will accept debt ratios higher than 35%, you should expect to play a slightly higher interest rate in order to get the loan. On the other hand, if your debt ratio is below the 35% threshold, your rate will be lower.
• Loan to Value – FHA loans offer the ability to put down just 3.5%, which means you have a high LTV, or very little equity in your home. If you are taking advantage of the FHA Streamline refinance shortly after obtaining the original loan, you will still have a high LTV, which makes lenders add some basis points to your interest rate to make up for the risk. On the other hand, if you put down more than the minimum 3.5% down payment or you have paid on the loan for a while and have more invested in the home, your LTV will be lower as will your interest rate. Most banks believe that the “more skin you have in the game” the less likely you are to default on the loan, resulting in a lower interest rate.
• Loan term – A 30-year loan term is riskier than a 15-year term. Because most FHA borrowers take on a 30-year term because it is more affordable as the payments are amortized over 30 years rather than 15, interest rates seem a little higher. If you can afford the 15-year payment you can obtain very lucrative FHA Streamline rates as a result.
• Discount points – Some borrowers prefer to pay more money upfront at the closing for their loan in exchange for a lower interest rate. These are called discount points and are paid directly to the lender. This is the lender’s way of making the same profit; he just gets the money up front rather than over the life of the loan in the interest. For some borrowers, it makes more sense to take the lower monthly payment and pay the extra costs up front.

FHA Streamline rates are often among the lowest rates available on the market. They are comparable and often lower than conventional rates, but they come with other fees that conventional loans do not have. The largest benefit of FHA loans is the ability to make a small down payment and have mediocre credit and still be able to get into a home. Even an FHA loan with a few risky attributes will have a comparable interest rate to the standard conventional loan, giving many more consumers the opportunity to become homeowners. If you were a borrower that obtained an FHA loan a few years back and have a significantly higher rate than is offered today, the FHA Streamline program can get you into those low rates with very little verification to qualify for the loan, making it easy to refinance and make your mortgage payments more affordable.

VA loans are specifically for the veterans of our country. It is a loan that makes it easy for those that have served our country to become homeowners. The requirements are easy to meet and the rates are low. The VA Streamline Refinance program, otherwise known as the Interest Rate Reduction Refinance Loan, offers veterans another chance to save even more money by offering low VA Streamline Rates in order to refinance their current VA mortgage. The program is even easier to qualify for than the original VA loan and allows veterans to lower their interest rate, increasing their disposable income while making it easier for them to keep their dreams of being a homeowner. If you are a veteran and your interest rate was only slightly higher than they are today, lowering your interest rate even 0.5% can amount to thousands of dollars in savings over the life of the loan. It is important to not just look at what you are saving today, but what your savings accumulate to over the life of the loan.

Factors that Affect VA Streamline (IRRRL) Rates

The VA Streamline rates are not determined or set by the Department of Veterans Affairs as one would assume. Instead, they are determined by the market, just like conventional loans obtain their rates. The mortgage rates are dependent on the secondary market, where the mortgages are sold. The VA does not hold onto any mortgages; in fact, they do not have a role in the funding of VA mortgages at all. They simply offer the guarantee for the lenders, enabling them to offer loans to what may be a riskier borrower than the bank would be comfortable lending to without the VA’s backing. The secondary market is where investors purchase the mortgages, giving lenders an instant profit and their money back so that they are able to lend to more borrowers.

In general, the better the economy is doing, the higher interest rates go. If you hear that the stock market is struggling, unemployment rates are up, and inflation is going down, then chances are the VA Streamline rates will begin to drop as well. On the other hand, if you hear that the stock market is thriving, jobs are plentiful, and inflation is predicted to rise, then you can expect the VA mortgage interest rates to rise as well. It works on a supply – demand type of relationship – the more money that is out there and available for home purchases, the higher rates go, but if the money is scarce and people are not buying, rates will go down because there is not a high demand and the market needs to be stimulated.

Individual Interest Rates

The standard rate for a 30-year fixed rate VA Streamline refinance is not going to be the same for every borrower. Lenders have a base rate that they are offered by the lending institutions, but then they have adjustments they can make to that rate in order to determine their own profits. Your individual situation will determine the rate you are offered by a lender, but remember that every lender has their own requirements, so shop around with several lenders before settling on a rate.

Credit Score

The first determining factor, and perhaps the largest, is your credit score. This number says a lot about you. Even though the credit score is technically not needed for the VA Streamline Refinance, most lenders will pull your credit anyways because it is such a telling number. This number will tell them if you have been responsible with your extended credit and have been making your payments on time. It will also let a lender know how much of your available credit you have used, which in turn, forces your debt ratio up, which is another factor in determining your interest rate. In general, VA lenders do not like to lend to borrowers with a credit score below 620, but some may if there are other compensating factors for the loan, especially if the interest rate reduction is going to greatly decrease your payment. The higher your credit score (760 is considered perfect) the lower the interest rate the lender will offer you.

Debt-to-Income

As discussed above, your debt ratio also plays an important role in the VA Streamline rates you are offered. Your debt ratio gives the lender an idea of how much outstanding debt you have compared to your gross monthly income. This is yet another factor that the VA does not require lenders to verify, as your income does not need to be re-verified in order to qualify, however, most lenders want to see where you stand before extending credit to you. If you have a debt ratio higher than the average of 35%, your interest rate could be negatively impacted in order to make up for the risk that a higher debt ratio provides.

Loan Term

The last factor that you have control over when determining the VA Streamline rates that are offered to you is the loan term. Generally, the shorter the term, the less risky the loan is for the lender. This means that a 15-year term will provide lower interest rates than the 30-year term. It is important to remember that your payment will be higher with a 15-year term despite the lower interest rate because the principal amount of the loan will be amortized over a shorter period of time. In the end, however, you pay less interest and have the loan paid off faster.

VA Streamline rates are among the lowest rates available to veterans. Even if you qualify for a conventional loan because you have good credit, a low debt ratio, and steady income, it is worth exploring your options as a veteran. The fees on the VA loans are not high and can even be rolled into your loan, leaving you with even more cash in the end. Make sure to compare the rates for all programs that you qualify for in order to ensure that you are making the right decision for your family.

The FHA provides excellent loan programs for borrowers with less than perfect credit or very little money to put down on a home. In addition to these benefits, the FHA also offers the 203K program, which allows you to make changes to your home, whether repairs that allow the home to meet with FHA approval or changes to meet your own specific needs or desires. The costs of the renovations you make are wrapped into your FHA loan, giving you one mortgage for the purchase and renovation of your home. The benefit of the FHA 203K program is that the 203K Streamline rates that are offered are typically lower than you would obtain on a 2nd mortgage, otherwise known as a home equity loan as any loan that takes second lien position typically has higher rates. In general, the typical FHA 203K rates are slightly higher than general market rates for a standard FHA loan, but low enough that many people can afford the payments.

How 203K Streamline Rates are Determined

Just as is the case with standard FHA loans, the FHA 203K Streamline rates are determined by the market. This means that the FHA has nothing to do with the interest rates that are set for your 203K loan. The state of the economy is how the base rates are determined, but the actual rate you are provided is a combination of the base rate that is offered to everyone and the adjustments which are necessary to compensate for your individual financial situation. As a general rule of thumb, the better the economy is doing, the higher mortgage interest rates climb. You can determine what rates are going to do based on what you hear about the stock market as well as the unemployment rates. The higher stock prices are and the lower the unemployment rate is, the higher the mortgage rates will be, but on the contrary, the lower the stock prices are and the higher the unemployment rate, the lower the mortgage rates. Generally, the Fed has nothing to do with the rates offered – it is strictly based on the economy unless the Fed has to step in to stimulate the economy or slow things down to keep them in control.

The Varying 203K Streamline Rates

Not every borrower will receive the same 203K Streamline rates however. No matter what rates are doing at any given time, there are still adjustments that apply to every person’s rate. This means the rate you are offered might be distinctly different from the rate your neighbor receives. Everyone starts with the same base rate, as is offered to the lender by the lending institutions, but the adjustments will vary the rate accordingly.

• Credit Score – The largest factor affecting your 203K rate is your credit score. The FHA is among the most forgiving when it comes to low credit scores, even offering loans to those with a score as low as 500 as long as they are able to put down 10% of the purchase price on the home. That being said, not every lender will provide funding to someone with a 500 credit score, but those banks that do will offer a higher interest rate to those borrowers because they are a much higher risk than someone with a credit score of 650, for example. Generally, the higher your credit score, the lower your interest rate will be.
• Debt Ratio – Your debt ratio says a lot about your financial responsibility. If your debts are more than 35% of your total monthly income, you are considered a higher risk as 35% is considered to be the average for debt ratios. This is not to say that the FHA or a lender would not approve your 203K Streamline loan with a debt ratio higher than 35%, but it does mean that your rate will be slightly higher in order to compensate for the higher risk.
• Term of the Loan – Your loan term plays a role in the interest rate you are provided as well. From a lender’s perspective, a 15-year mortgage is less risky than a 30-year mortgage because the amount of time you have to pay the loan is cut in half. In addition, your mortgage payments on a 15-year term take more money off of the principal portion of your loan, which means you have more equity in the home. Generally, the more equity a person has in their home, the more likely they are to make their payments in order to avoid losing their investment.

All of these conditions being considered, the FHA Streamline rates might be slightly higher than what you would receive on a standard FHA loan. In some cases, they can be as much as 1% higher. This is strictly due to the extra work that is involved in the 203K Streamline loan. The lender does not just close on your loan when you purchase it, disburse the money, and sell your loan. Instead, they have to stay involved in the process until all of the work is completed on your home. In some cases, an inspection will be necessary for the lender in order for them to disburse the remaining funds to the contractors. The lender holds onto the portion of the loan that was reserved for the remodeling of your home and only disburses it in two payments – one in the beginning of the process to get the work started and the final one when the work is completed and all liens have been removed.

In some cases, you can buy your interest rate down to make 203K Streamline rates a little less expensive for you. This depends on what type of rate you want and how long you plan on staying in the home. Some people prefer to pay the higher rate than paying money out of their own pocket for a lower rate. Others prefer to pay the money upfront and have the lower monthly payment. If you plan on staying in your home for the foreseeable future, it makes sense to buy that rate down, but if you know this home purchase is just for the short-term, taking the higher interest rate might make more sense.