What's in this article?
Documentation is kept to a minimum — especially when compared to other types of loans — but there are still some needed.
It’s your job to provide these and/or work with the lender to ensure they have access to everything that’s required to process your application.
Which Documents Do You Need?
The sooner you gather the required documents, the sooner you can finish the application process and determine if you’re in a position to proceed.
Let’s Get Your Loan Started
The following is a list of the things your lender needs to process your application:
- Current mortgage statement
- Current loan mortgage note showing your loan type and interest rate
- Employer contact information so your lender can verify your employment (they will not verify your income)
- Final HUD-1 settlement statement of your current loan
- Minimum of two months of bank statements to prove that you have the resource to pay out-of-pocket expenses
- Current proof of insurance, generally by providing your home insurance agent’s contact information
Tip: don’t delay in paying your current month’s mortgage payment, as your lender will seek proof that your loan payments are up to date. Should you delay, it may appear to them that your loan is not current.
What You Need to Know
You now know the FHA streamline documents needed, but that’s not always enough information to help you make a final determination. There are other things you need to know, all of which can impact you now and/or in the future.
Is an Appraisal Required?
This depends on two factors:
- The mortgage lender
- Your personal choice
Some mortgage lenders may require an appraisal, although it’s uncommon. So, this leaves you to make the choice.
The primary benefit of no appraisal is that you can more quickly and efficiently move through the entire process. Not to mention the fact that you don’t have to pay for an appraisal.
However, there is a benefit of opting for an appraisal: it allows you to include closing costs in your new loan. Without this, you have to pay these costs out of pocket.
Note: consider the risk of ordering an appraisal. If you don’t have enough equity to cover your existing balance, closing costs, and miscellaneous expenses, you should avoid this. You don’t want to bring light to these circumstances as it could hinder your ability to qualify.
Do You Have to Pay Mortgage Insurance Premiums?
This is one of the primary disadvantages of an FHA loan. You’ll have to pay these types of mortgage insurance premiums:
- Upfront mortgage insurance premium (UFMIP): This is a one-time fee charged at closing. UFMIP is set at 1.75 percent of the base loan amount.
- Annual insurance premium: This is paid over the life of the loan. It means that you’re paying a percentage of the premium every month. The percentage varies based on the base loan amount, term, and down payment.
Can You Get Cash Out of an FHA Streamline Refinance Loan?
There are many benefits of accessing cash via the equity in your home. You can use this money to pay down debt, consolidate debt, or renovate/repair your home — and that’s just the start.
You cannot get cash out of an FHA streamline refinance loan. Instead, you should turn your attention to an FHA cash-out refinance. This allows you to take advantage of the equity in your home.
However, there is one exception to this rule. The FHA allows you to access a small amount of cash — generally $500 or less — but only in the event of incidental changes as the result of closing cost errors or miscalculations.
Can You Remove Borrowers From the Original Loan?
It’s common to use an FHA streamline refinance loan to remove a borrower from the original loan. The only thing to remember is that one of the original borrowers must remain on the mortgage.
Also, you can add borrowers to the title, often without an asset or income review. This makes it a good choice for people who purchased their home before marriage and want to add their new spouse to the title of the property.
Can You Use an FHA Streamline on a 203(k) Rehab Loan?
When buying a home, you may need to finance both the property itself and repairs. In that case, a 203(k) rehab loan is an option to consider.
At some point — typically after you have finished the rehab — you may want to refinance out of this type of loan.
The FHA allows you to refinance into an FHA streamline refinance loan without an appraisal. However, given the fact that you borrowed money originally to rehab your property, your lender may require an appraisal to verify its value.
You’ll need to share the following information with your lender:
- A certification that the work has been completed on your home
- A final release of the funds in the rehab escrow account
- A copy of the original lender’s completion of the closeout process
It’s beneficial to you — the borrower — that the FHA streamline documents needed are kept to a minimum. This speeds up the process, reduces stress, and allows you to clearly understand your role.
By gathering the necessary documentation upfront, you’ll feel more confident in your ability to apply for and secure an FHA streamline refinance loan.
Once you’re sure that an FHA streamline refinance is right for you, you can also request more information from several lenders. They can talk to you about current rates, terms and conditions, and other details.
This will put you on the fast track to forging a relationship with a reputable lender that has your best interests in mind.