The FHA Streamline process is a great program for homeowners currently with an FHA mortgage. If you obtained this mortgage a while ago, you might have a higher interest rate than is available today. Rather than going through the entire mortgage process again, including the rigorous qualification process, you can apply for a mortgage with any of the FHA Streamline lenders in your area and receive the benefits of a lower rate on a new FHA loan with very few requirements. This means even if your conditions are different, such as you have a different job or you have fewer assets, you will likely still qualify for the loan. Every lender has different requirements, however. If one lender turns you down, it makes sense to shop around with various other lenders to see which lender has the least investor overlays getting in the way of your mortgage approval.
FHA Streamline Mortgage Application Process
The application process for the FHA Streamline loan is very simple. You do not have to go through the lender you used for the original FHA loan – you can go to any FHA approved lender. The rest of the process is the same as any other loan application. You start by completing the loan application for the lender. This application includes the details of your life including your address, employment, income, and debts. Even though the FHA Streamline refinance does not technically require verification of any of these items, you must honestly disclose everything on the loan application. Some lenders will verify the numbers you give them, so make sure you are providing realistic information in order to avoid your loan getting declined due to fraudulent answers on the application.
The Underwriting Process
The underwriting process of the FHA Streamline refinance is different than a standard FHA loan in some respects. It still goes through an underwriter,who evaluates your financial status, but in most cases, the FHA Streamline lenders will not require new proof of your income, assets, or debts – they use your original numbers from your FHA case. In general, you will need the following documents:
- The mortgage note for your first FHA loan as the lender will need this to determine the interest rate you currently pay and the type of loan that you have (fixed or adjustable rate)
- The latest copy of your mortgage statement
- The HUD-1 from the closing of your first FHA loan (to obtain the FHA case number)
- The last two months’ worth of asset statements if you are not taking a no-closing cost loan so that you can prove you have the money to bring to closing
- Information about your employer including the contact name and phone number of the Human Resources department to verify your employment
- Proof of current homeowner’s insurance
The above documents are the minimum required documents by any lender as they are required by the FHA. Every lender has their own requirements, however, and may require you to provide verification of your income or clarification of any other items that seem questionable on your application. As a general requirement, the FHA allows FHA Streamline lenders to provide a refinance based on the above documents but if the lender is not comfortable or the investor buying the mortgages from the lender requires further verification, more documentation may be necessary.
The FHA Loan Closing Process
The closing process for the FHA Streamline loan is the same as any other loan. You will pay closing costs and will have to pay upfront mortgage insurance premium in order to get the loan. You will still go to the title company to close the loan; have to pay for a new title search and title insurance; and sign the documents all over again. The closing costs typically found on an FHA Streamline loan include:
- Origination fee (if the lender requires)
- Processing fee
- Underwriting fee
- Title search fee
- Title insurance
- Credit report fee
- Recording fee
- Tax service fee
- Upfront mortgage insurance (minus any refund)
The closing costs are negotiable with the lender, so don’t take it at face value if they seem high. You can negotiate lower costs or even a no-closing cost loan. In exchange for the closing costs, however, you will take a slightly higher interest rate. If you can afford the slightly higher payment and can still prove that you are saving adequate money each month, you may be able to get away without the need to bring any money to the closing. This is especially true if you are able to get an MIP refund, which is a refund of the upfront mortgage insurance premium you paid on your first FHA loan. This is only available to borrowers that took out their original FHA loan less than 3 years ago and is a prorated amount of the mortgage insurance you paid. The refund does not apply to the annual mortgage insurance premium you paid on the loan so far, however – that is non-refundable.
Will you Need an Appraisal for a FHA Streamline Refinance?
Perhaps the biggest question anyone has about the FHA Streamline loan is whether or not an appraisal will be necessary. In general, no appraisal is required and if it were up to the FHA alone, an appraisal would never be done. However, some lenders require an appraisal to ensure that the home is not too far underwater as sometimes lenders do not want to take on that risk since someone that is underwater is less likely to keep up with their mortgage payments. On the other hand, borrowers sometimes request the appraisal, especially if they know their home has increased greatly in value and their loan is now below the 90% loan-to-value ratio. If this is the case the mortgage insurance premium must be paid for 11 years and then is automatically cancelled, otherwise the MIP continues throughout the life of the loan.
FHA Streamline lenders can offer you a lower rate on your current FHA loan without the headaches that most loans cause. Remember to shop around with various FHA Streamline lenders as they each have something different to offer including different rates, terms, and requirements.