#mortgage reduction program
About the FHA Streamline Rate Reduction Program
FHA streamline rate reduction allows FHA-insured mortgage holders to apply for a lower rate with less paperwork.
The FHA streamline rate reduction program is a option for homeowners with FHA-insured mortgages to reduce their interest rates and monthly payments with a lower amount of paperwork and qualification. Homeowners with an FHA mortgage can check to see if they can lower their payments through the streamline program. If mortgage rates decline, homeowners can keep checking until it makes sense to use the program and get a lower mortgage rate.
The FHA has offered homeowners with FHA-insured mortgages a streamlined refinance ability since the 1980s. The purpose of the FHA streamline process is to allow homeowners to get into a lower-cost mortgage with reduced paperwork and underwriting. The U.S. Department of Housing and Urban Development–HUD–notes that streamline does not mean there are no costs involved in this type of refinance.
To qualify for a streamline refinance, the homeowner must meet several qualifications. The home must currently be financed by an FHA loan and the loan must have current payments for the last 12 months. The refinance must result in a lowering of both the interest and payments for the homeowner. The homeowner must provide proof of employment. A streamline refinance does not require a credit approval or meet debt-to-income requirements.
There are three ways a streamline FHA refinance can be structured. If the homeowner elects to pay the closing costs, the new mortgage will start with a principal balance equal to the current balance of the existing mortgage. The new loan will be financed at the current FHA interest rate. Some lenders offer a “no-cost” streamline refinance by charging a higher interest rate and using the profits from the premium rate to pay the closing costs. The rate will still be below the rate for the existing mortgage and the homeowner will have no out-of-pocket cost. The third option is to have the closing costs rolled into the mortgage, increasing the amount of the mortgage principal. This option requires an appraisal to be performed on the home.
If the closing costs are rolled into the loan balance and a new appraisal is required, the loan must meet the FHA loan-to-value guidelines. In most cases, the new loan must be less than 96.5 percent of the appraised value. The streamline options that do not require an appraisal do not have any loan-to-value restrictions. The amount of the homeowner’s mortgage principal is not increased with these options.
The streamline process from the FHA allows homeowners with FHA mortgages to lower their rates and payments almost anytime rates have fallen enough to cover the closing costs. An FHA loan can be streamline-refinanced as soon as six months after the loan is taken out. The streamline process does not allow any cash out from a home with equity. A cash-out refinance must go through the complete underwriting and approval process.