Evaluating the Pros and Cons of FHA Refinancing

For people with a Federal Housing Administration (FHA) mortgage, an FHA Streamline refinance is a quick and easy process. Borrowers can take advantage of low-interest rates to lower monthly payments. 

And My Perfect Mortgage can help you make refinancing as easy as ever.

An FHA mortgage is a way for folks with low-to-moderate incomes and credit scores to secure a home loan. Loans are backed by the Federal government and secured through an FHA-approved lender. Buyers can secure a loan without putting down a bundle. 

But FHA loans aren’t just for low-income borrowers. Anyone who wants to put less money down, and can qualify, can take advantage of this loan. There are no income restrictions. 

To first qualify for an FHA mortgage loan, you must meet the following qualifications: 

• 3.5% minimum downpayment 
• Credit score above 500 (below 600 requires a 10% down payment)
• Proof of bills paid on time for a year
• Two established credit accounts, such as a car loan and a credit card

As an FHA customer, you can then take advantage of the streamlined refinance process. Is it right for you? Let’s look at the pros and cons of an FHA streamline refinance.

What is FHA Streamline refinance?

Only available to borrowers already in an FHA mortgage loan, FHA streamline refinancing is a quick and simple way to help lower monthly mortgage payments. 

Once an FHA borrower, your information will already be on file. This allows an FHA refinance to be streamlined into a quick process, with little-to-no paperwork. 

Because customers already went through the loan process for an FHA mortgage, the property doesn’t have to be appraised. This is one of the things that leads to less paperwork and quicker approval.

Two different types of FHA Streamline refinance exist: credit qualifying and non-credit qualifying. 

Non-credit qualifying borrowers do not have to go through what credit qualifying borrows will have to, which includes a credit check and calculating debt-to-income ratio. 

But borrowers may want to have an appraisal done if their home’s equity has increased.

And while borrowers can’t roll closing costs into a new loan, some lenders are willing to negotiate and lower closing costs. The ease of the process is attractive to lenders, as well as borrowers, so they’ll want to keep your business.   

Some non-credit qualifying borrowers also may want to go through the extra paperwork and take the credit qualifying route to try to lower interest rates. Another reason may be to remove a person’s name from the original loan. 

For example, if a couple divorces and one spouse becomes responsible for the mortgage, a refinance will remove the other spouse from the new mortgage.

What are the requirements for FHA Streamline refinancing?

According to U.S. Department of Urban Housing and Development, which oversees the FHA program, the basic requirements of a streamline refinance are as follows:

• The mortgage to be refinanced must already be FHA insured.
• Borrower must be current for at least six months on their mortgage
• A refinance results in a net tangible benefit to the borrower. (The definition of net tangible benefit varies based on the type of loan being refinanced, and the interest rate and/or term of the new loan. My Perfect Mortgage can help answer any questions.)
• Cash in excess of $500 may not be taken out on mortgages refinanced using the streamline refinance process.
• Investment Properties are only eligible for FHA insurance if the borrower is a HUD-approved Nonprofit Borrower, or a state and local government agency, or an Instrumentality of Government.

What are the pros and cons of FHA streamline refinance?

The three main benefits of mortgage refinance are to secure a lower interest rate, lower the monthly payment, and get a shorter payoff term. 

People also refinance to get cash in hand to pay bills or make home improvements, but an FHA streamlined refinance restricts cash-outs to $500.

My Perfect Mortgage is committed to providing its customers with up-to-date information and expert knowledge behind refinancing.

A con of refinancing is the  closing costs, which can range between 2% and 3%. Borrowers must figure out the time, in months, that they will see savings on their monthly payments after closing costs are paid. 

How is it done? Divide closing costs by the monthly savings from your new payment.

FHA borrowers will also have to pay 1.7% Up-Front Mortgage Insurance (UFMI). This insurance is used to protect the lender from defaults. 

FHA Streamline can be a good deal for homeowners who purchased or refinanced from 2010 to 2015, because FHA has since lowered its annual mortgage insurance rates. 

By refinancing a pre-2015 mortgage with the FHA streamline, you may be able to drop your annual mortgage insurance rate from over 1 percent to just 0.85 percent, according to the Mortgage Reports. 

Frequently Asked Questions about FHA Streamline Refinance

If this is all new to you, don’t fret! We’ve got the answers to common questions about the streamlined process. 

What is the minimum amount of income to be approved for a FHA Streamline refinance?

An FHA Streamline loan requires no proof of income, although some lenders require proof of employment. 

Would if I missed a payment or two?

A borrower cannot have missed a payment by more than 30 days past the due date for the three months prior to applying. More than one payment paid 30 days past due within the year will disqualify borrowers.

Can I refinance my 30 year loan to a 15 year loan? 

No, FHA Streamline refinance requires the time period to remain the same, unless you want to refinance for longer. 

Do I have to use my current FHA lender to refinance? 

Nope! As long as they are on the FHA approved list like My Perfect Mortgage, they can provide the service. 

How long does FHA Streamline refinance take?

While a typical refinance loan process can take 45 to 60 days, FHA Streamline refinancing can be processed in about a month to a few weeks. 

How long do I have to wait to apply for FHA Streamline?

In order to be eligible for a Streamline Refinance, borrowers must make six mortgage payments on their current FHA-insured loan, and that 210 days pass from the most recent closing date.

Find your Perfect Lender for Refinancing

Like anything, there are pros and cons to an FHA streamline refinance. It’s up to you to decide what’s best for your situation.

An FHA streamline refinance can help secure a stronger financial future by lowering monthly payments and taking advantage of lower interest rates. 

If you don’t know where to start, My Perfect Mortgage can take the leg work out of choosing your perfect lender to start your refinance. 

Get started with My Perfect Mortgage today.

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