If you have a first and second mortgage, you are in a little bit of a predicament when you want to refinance your first mortgage. Technically speaking, the second mortgage holder takes first lien position when you refinance the first mortgage. This is because the second lien holder originally promised to take second lien position after your original lender. Once that lender’s loan is paid off, the second mortgage holder can take the first position. In order to prevent that from happening and to allow you to refinance the primary mortgage on your home, you have to take the following steps.

 

You Need a Resubordination to Refinance your First Mortgage

 

The most crucial step in the entire process is to get the second lienholder to continue to stay in second lien position. The mortgage company that holds your second mortgage is already in a junior position, but they move up to a senior position if you ever pay off that first mortgage. Essentially, when you refinance your first mortgage, you pay it off. This puts the second lien in the first position.

 

In order to avoid this from happening, the new lender for your first mortgage will require you to secure a new subordination agreement from the company that holds your second mortgage. The lender will need to know all of the details of your new mortgage as well as the current value of your home. The lender handling your refinance can usually handle all of the details regarding what the second lienholder requires.

 

Obstacles to the Resubordination

 

There could be a few obstacles that could come up when you try to get the second mortgage holder to take the second position on your title. The following situations pose the greatest danger:

 

–    Your combined outstanding principal between the first and second mortgage is too high compared to the value of your home

–    The value of your home decreased too much since you originally took out the loans

–    You have an open line of credit for the second mortgage

–    The first mortgage is a risky program (such as an ARM)

 

There are ways around some of the obstacles, but not all of them. For example, if the second lienholder refuses to subordinate and you have the room in the value of your home, you can consolidate the first and second mortgage into one loan. This leaves no one to be subordinated and all loans are in one place making it easier on you.

 

If you have an open line of credit, you can close the line, making it a standard home equity loan that has regular payments due every month. This takes a level of risk away from the second lender, making them more likely to agree to subordinate again.

 

Last, but not least, you can opt for a less risky loan. If you refinance into an adjustable rate, the risk is higher that you will default in the future because you cannot predict the payments in the future. Instead, opt for a fixed rate loan that is predictable and less risky.

 

Refinance with the Same Lender

 

One way around the need to resubordinate your second mortgage is to refinance your first mortgage with the lender that holds your second mortgage. When this happens, there still needs to be an agreement to subordinate, but the lender is only competing with itself. This way if you were to default on the loan, the lender has a say in the proceeds of the home no matter what.

 

This is not always the way it needs to be, but if there is anything risky about your second mortgage that makes the lender not want to subordinate, it could be a good option for you.

 

If you wish to refinance your first mortgage and you have a home equity loan, it is not an impossible task. It will take a little more work and some more time, but it can be done. If you have a second mortgage, make sure to plan ahead accordingly when you want to refinance as there is no way to predict how long the second lienholder will take to agree to a subordination – sometimes it can take over a month. Start the process early and answer any requests right away to ensure that you are able to refinance in a timely manner.

 

Streamline refinancing enables you to secure a lower interest rate on your mortgage without having to go through the original headaches you went through to get the original mortgage. Whether you have an FHA, VA, or USDA government backed loan, you have the option to streamline the refinance process if your goal is strictly to lower your interest rate.

The FHA Streamline Loan

The FHA Streamline Loan enables you to lower your interest rate and payment with a few simple steps. What you do not need for this loan is:

• A credit report
• An appraisal
• Verified income
• Verified employment

What you do need to prove is that you do not have any late housing payments in the last 3 months. In addition, the 9 months preceding the last 3 months cannot have more than one 30-day late payment as far as your housing payments are concerned. This is how the FHA gauges your risk level for streamline refinancing. If you have too many late housing payments, the FHA and the new lender will not want to take a risk writing a new loan for you.

The goal of the FHA Streamline Refinance is to make your housing payments more affordable, but it is for those borrowers that are serious about their housing payments. If you do not have a solid payment history, you do not show that your housing payments take priority.

Once you are confident that you have the timely housing payments, you will need a few other things for the FHA Streamline Refinance:

• Proof that you have enough assets to cover the closing costs. You cannot roll the closing costs into the loan. The only cost you can roll into it is the upfront FHA mortgage insurance premium. If you cannot pay the closing costs or cannot prove the liquid assets to pay them, you can negotiate with the lender to have them pay the closing costs for you, but you will do so in exchange for a slightly higher interest rate. This rate must still be lower than your current rate in order to qualify.
• Proof that the new payment is lower than the existing payment. The only exception to this rule is if you refinance from an adjustable rate loan to a fixed rate loan. In this case, your interest rate and/or payment can increase slightly and still leave you eligible for the loan.

The best news regarding the FHA Streamline Refinance is the ability to get a refund of the upfront MIP you paid on the original loan. You can receive a refund if you refinance within the first 3 years of obtaining the original loan. The amount you receive depends on how much time passes between the original loan and the refinance, but it starts at 70% after the six month, which is when you are eligible to refinance and goes down to 10% during the 36^th and last month.

VA Streamline Loan

The VA Streamline Loan is called the Interest Rate Reduction Refinance Loan. As the name suggests, this streamline refinancing program helps you reduce your interest rate. Just like the FHA Streamline, you do not need to verify very much for the loan, as the VA allows the lender to use the initial qualifying factors used for the original VA loan.

The VA Streamline Loan works much the same way as the FHA Streamline Loan works. You must prove that you have made your housing payments on time. For this program, you are allowed one 30-day late housing payment during the last 12 months. If you have more than that, you will have to wait to refinance until you have a solid 12 months with only one late payment. In addition, you must prove that there is some type of benefit for the refinance. Typically, this benefit means that your payment and/or interest rate are lower. There are some instances when this is not the case, however, including:

• Refinancing from an adjustable rate to a fixed rate
• Refinancing from a 30-year term to a 15 or 20-year term
• Including energy efficient changes in the loan (up to $6,000 is allowed)

The final few things you need to prove include occupancy in the home up to the date you apply for the refinance (owner occupancy is not required after the refinance) and that you benefit from the refinance.

The one thing that the VA Streamline Refinance has that the FHA and USDA refinance do not is that you can roll the closing costs into the loan. The VA limits the loan amount to the outstanding principal, plus the upfront funding fee, and the closing costs. This makes the VA Streamline very affordable as you do not have to verify any assets in order to qualify.

USDA Streamline Refinance

Just like the FHA and VA Streamline Refinance programs, the USDA Streamline offers a simple format to help you lower your interest rate and payment. You do not need an appraisal, credit score, or income verification for this program either. You simply have to verify that you occupy the property; that you have a current USDA mortgage; and that you have made your housing payments on time. Just like the FHA and VA refinance, you cannot have more than one 30-day late payment in the last 12 months.

The requirements that the USDA Streamline Loan has that are a bit more specific than the other programs include:

• You must be lowering your interest rate at least 1 percent in order to qualify; this is where the USDA determines that it is worth refinancing
• You cannot cut the term short – you have to take out another 30-year term
• The new payment must be at least $50 less than your current payment

These requirements are fairly easy to hit and are much easier than waiting for the value of the home to come back to see if you have enough equity to refinance or worrying about your credit score because it dropped recently.

The USDA Streamline Loan operates much the same way as the FHA Streamline Loan in terms of closing costs, though. You cannot include the closing costs in the loan – you have to be able to pay for them on your own. The USDA limits the loan amount for the refinance to the outstanding principal balance plus the upfront guarantee fee of 2 percent – nothing else can be added.

Streamline Refinancing is Worth It

If you want to get ahead in the equity of your home or you just want to have more disposable income every month, streamline refinancing is worth it. You have to do half of the work you had to do for the original loan and you get a lower rate/payment as a result. Basically, if you pay your mortgage on time and you hold one of the above government-backed program, you can refinance it.

This is great news for borrowers that live in an area where the values have dropped or for those borrowers that experienced financial difficulties and it is portrayed in their credit score. The government entities offering these programs are here to help you, which is why they offer the opportunity to lower your payment and interest rate in order to make the payment as affordable as possible.

If you are a veteran that already established VA loan eligibility, chances are more than likely that you also have VA Streamline Loan eligibility. There are certain circumstances that might prevent you from being able to refinance, but a majority of veterans are able to take advantage of the lucrative program that enables them to save even more money every month.

The General Requirements

If you thought the standard VA loan contained very flexible guidelines, you will love the VA Streamline loan guidelines, as they are even more flexible! The guidelines for the VA Streamline include:

–    Timely mortgage payments over the last 12 months; the VA will not allow more than one 30-day late payment in that time in order to be eligible

–    The new payment must be lower than the existing VA payment, which is fairly easy to do since the name of the program is the IRRRL or Interest Rate Reduction Refinance Loan

–    Prove previous occupancy of the property

–    Prove use of your entitlement on the current VA loan

Those are the only requirements! You do not need to verify your income, employment, assets, or even your credit. The lender is able to use the fact that you qualified for the VA loan in the first place as reason enough to qualify you for the loan as long as you meet the above requirements.

The Payment History

The payment history on your VA loan is the largest determining factor in your VA Streamline Loan eligibility. The VA and its subsequent lenders use the housing history as a judgment of your credit and/or debt ratio. If your housing payments are on time, then you can afford the payments you have. Since the payments moving forward will be lower than your current payments, the VA and the lender can confidently offer you a new loan.

If you have late payments, however, a new lender will have a hard time writing a new loan for you. Even though the payments will be lower, you might not have your head above water just yet, which could put the new lender in jeopardy. If you do have more than one 30-day late payment in the last 12 months, it is to your benefit to start making those payments on time and waiting until you have a 12-month period with no more than one late payment.

Credit and Home Value do not Matter

The best news about the VA IRRRL program is that your credit score and home value do not matter. In today’s economy, this can be great news. People that lost a great deal of value in their home and/or those that suffered negative credit histories as a result of a job loss or income downsizing can still refinance. Since the idea behind the VA IRRRL program is to make the payments more affordable, it is a win-win situation for everyone involved. The payments become more affordable for you, which enables you to do a few things:

–    Make your payments on time to build your credit back up

–    Gain more equity back in your home as the value builds and your principal decreases

The lower payment also gives the VA and the lender more confidence that you will get the payments made on time. This means that the VA has to bail out fewer banks and the banks continue to make money on the interest you pay.

Entitlement and VA Streamline Loan Eligibility

You probably remember having to prove your VA entitlement when you first took out your current VA loan. Some lenders check for entitlement automatically with an online program while others require you to prove your entitlement. Whatever the case may be, you do not have to do that again. Your entitlement automatically rolls over for the refinance, giving you VA Streamline Loan eligibility automatically. You do not have to use any remaining entitlement; you reuse the entitlement you already used.

The VA Streamline process is extremely simple and a great way to save money. Because there is very little to verify, the process can be completed rather quickly. As soon as the lender confirms your timely housing history and used entitlement on the original VA loan, the process can move faster. Before you know it, you could have a loan with a lower interest rate and payment, saving you a significant amount of money every month.

Whenever you hear the word “streamline refinance” you know it is going to be good. A streamlined process usually means that there is less paperwork required and fewer hurdles to cross. This is definitely the case with the USDA Streamline Refinance which has many perks that help you refinance your mortgage into a lower payment, making it more affordable for you. Aside from a lower payment, though, there are many advantages.

No Appraisal Needed

Perhaps the largest benefit of the USDA Streamline Refinance is the lack of need for an appraisal. Without an appraisal, you could knock off a week or two off of the processing time for your appraisal, not to mention the other benefits you will realize. Without an appraisal, you do not have to worry about the value of your home. As the economy continues to try to overcome the housing crisis, some values are not up to where they were before. This would leave many homeowner’s unable to refinance under most programs, but the USDA program is an option. In addition, without the need for an appraisal, you could save several hundred dollars on your closing costs, which can add up in any refinance.

No Credit Report

Another worry many borrowers have is the state of their credit. Without good credit, generally, you are not eligible to refinance. With the streamline USDA loan, however, it does not matter. The lender simply has to verify that you made your last 12 housing payments on time, which can be done without a credit report at all. This means even if your credit score suffered some damage through the years, the lender will not hold you back from refinancing. The savings you gain from the refinance can help you get your credit back on track by paying debts down or off completely.

No Debt-to-Income Ratio Calculations

Another calculation that lenders do not have to do for USDA Streamline loans is the debt-to-income ratio. You do not need to provide proof of your income in order to qualify for this loan, which means the lender cannot calculate your DTI. Because the point behind the streamline refinance is to lower your payment, your DTI will automatically decrease. Since you must have a perfect 12-month housing history to qualify, the lender does not have a lot at risk so they do not have to worry about your DTI.

Save Money with the USDA Streamline Refinance

The entire point of the USDA Streamline Refinance program is to save you money every month.  A part of the requirement is that your interest rate decreases by at least 1 point and you must refinance into a 30-year fixed. With that being said, you stand to save several hundred dollars every month, which can be a tremendous benefit for homeowners.

Roll the Funding Fee into the Loan

One drawback of this program might be that you have to pay the funding fee again. The good news is, however, that you can roll that fee right into the loan so that you do not have to pay the cost out of pocket. This can lower the amount of money you must bring to the closing, giving you another benefit to the USDA program.

Basically, if you have a USDA loan right now and you are current on your payments, you can use the USDA Streamline Refinance program. If you are able to save several hundred dollars a month by securing an interest rate that is at least 1% lower than you pay right now, the benefits are written in stone for you. Without a lot of work necessary on the loan, you will not have to wait a long time to get the process going, meaning that you can start saving money right away.

If you are interested in lowering your USDA interest rate, talk to an approved USDA lender in your state. You do not have to use the original lender that wrote the USDA loan that you have now – you can use any USDA approved lender that provides USDA Streamline Refinance loans. In fact, shopping around to find the best rate and lowest closing costs could work to your benefit, saving you even more money in the long run.

HUD’s Qualified Mortgage Rule has changed the face of the mortgage process in the last few years. Lenders are held to stricter rules and are not able to hand out as many mortgages as they once did unless they meet very specific requirements. In regards to the FHA streamline refinance transactions, the QM rules do apply, but there are specific exceptions in regards to the income. The one area that the QM rules apply is the amount of money the lender can charge the borrower in order to obtain the loan.

The Points and Fees

The points and fees charged on an FHA streamline loan are what really matter when it comes to the QM rule. The basic rule is that the points and fees charged cannot exceed 3 percent of the loan amount. The points and fees include discount points and origination fees. A few charges that a lender must charge in order to process the loan might be able to be excluded – following is a list of must be included:

• Prepaid finance charges
• All compensation paid to the lender whether direct or wrapped into the interest rate charged
• Discount points
• All fees paid to third parties, such as the title company if the lender benefits at all

There are fees that can be excluded, which include:

• Per diem interest
• Upfront mortgage insurance
• Third party fees that the lender benefits from
• Escrow accounts

The Income Exception

The one area that FHA streamline refinance transactions do not have to follow the QM rules is the income qualifications. QM rules state that the lender must do its due diligence in determining that a borrower makes enough money to afford the loan now and in the future. Since the whole point of the FHA streamline program is to eliminate the need to verify things like credit and income, there is an exception when it comes to this program. The lender is not required to verify income under QM guidelines as long as the following requirements are met:

• The FHA loan that the borrower holds right now is current
• The principal balance remains the same or lower – it cannot increase
• The fees charged do not exceed 3 percent as stated above
• There is ample reason for the refinance (typically that the interest rate is lower)

The FHA streamline program makes it very easy to refinance your FHA loan in order to save money. Since the premise behind the program is to save you money every month, qualifying under the QM guidelines is not hard for most borrowers. You cannot qualify for the FHA streamline program if you are not saving a significant amount of money every month, so it makes the process easy when it comes to QM guidelines. If the streamline refinance loan does not provide you with a savings, you will not qualify with the FHA anyways. The key is to lower your interest rate enough to make a difference in your monthly savings.

The FHA does not require verification of your income or credit because the streamline refinance is meant to lower your payment. If you can prove that you made your current FHA housing payments on time for the last 12 months, it is the assumption of the FHA that you will continue to make the payments on time when the payments are lower. Of course, certain lenders have their own overlays on the program, in order to minimize the risks they take. If you are using a different lender than the one that wrote your original mortgage, you might have to undergo a little more qualification just to prove your ability to pay the mortgage.

Overall, the process is simple and well worth it if you are able to save money every month. The FHA streamline program has helped millions of FHA loan holders save money every month. Are you next?

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.