What Is a Streamline Refinance?
Mortgage Q A: “What is a streamline refinance?”
While qualifying for a mortgage refinance is generally a lot harder than it has been in the past (now that lenders actually care how your mortgage performs), there are less cumbersome options available.
In fact, many lenders offer “streamlined” alternatives to existing borrowers to lower costs and make refinancing more accessible.
Plenty of banks out there have their own “streamline refinance” programs that come with looser credit scoring requirements, easier income and asset verification, and limited paperwork.
And in some cases, you don’t even need to order an appraisal. Put simply, a streamline refinance takes a lot of the legwork (and time) out of the process, and may increase your chances of approval.
However, streamline refinances also come with their own list of requirements, namely that the refinance has a “net tangible benefit.” In other words, it should help the homeowner, not just put money in the pocket of the loan originator.
This generally means that the mortgage rate should drop by an amount that will eclipse any related fees, and/or that the loan is converted from an adjustable-rate mortgage to a fixed-rate mortgage.
Streamline Refinance Guidelines
Here s a condensed list of possible streamline refinance guidelines and rules:
- Must be current on your existing mortgage
- Refinance must clearly benefit the borrower
- No cash out allowed
- Limited income/asset verification
- Minimal credit requirements
- Less paperwork
- Faster processing
- Lower closing costs
- No appraisal necessary
*Keep in mind that these guidelines can vary widely from bank to bank, and not every lender will offer a streamline refinance, or approve you if they do.
FHA Streamline Refinance
Perhaps one of the most popular and well-known streamline refinance options out there comes courtesy of the FHA. In fact, the FHA has permitted streamline refinances since the early 1980s. Of course, they ve become much more popular lately thanks to the mortgage crisis.
They make it easy to refinance your mortgage to a lower mortgage rate, without the need for an appraisal, many of which happen to come in low these days.
And with no credit scoring requirement and limited documentation requirements, most borrowers can qualify for a streamline refinance quite effortlessly, even if they don t have adequate income, assets, or employment. The idea here is that a borrower with smaller monthly mortgage payments is a less risky borrower, which is good for the hard-hit FHA.
There are just a handful of simple requirements necessary for approval. As long as your existing mortgage is an FHA loan and in good standing (not delinquent), and the refinance will result in a lower monthly mortgage payment (or you’re converting your ARM to a FRM), you should be good to go. The only thing you really need to worry about is the seasoning requirements, including the following:
you must have made at least six (6) payments on the FHA-insured mortgage before refinancing
six (6) full months must have passed since the first payment due date of the original mortgage
210 days must have passed from the closing date of the original mortgage
Also note that no cash out can be taken out via a FHA streamline refinance. Only rate and term refinances work here.
However, you can get your hands on a no cost refinance, meaning you won’t necessarily need to pay out-of-pocket expenses, but you ll be stuck with a higher interest rate in return.
This is common because the FHA doesn t allow lenders to roll closing costs into the new mortgage amount on a streamline refinance without an appraisal.
Finally, because no appraisal is required, the FHA streamline refinance is an excellent option for those who are underwater on their mortgages.
Tip: President Obama recently lowered mortgage insurance premium costs on FHA Streamline Refinances to help more borrowers take advantage of the record low mortgage rates currently on offer.
VA Streamline Refinance
The FHA isn’t the only one offering streamline refinances. The VA also offers a streamlined “VA loan to VA loan” refinance, known as an “Interest Rate Reduction Refinancing Loan,” or IRRRL for short.
Yes, that’s a lot of “R’s,” but a VA streamline refinance is easy to execute and can save you a lot of money now that mortgage rates are so low.
The same basic rules apply. Your refinance must result in a lower interest rate, or you must switch from an ARM to a fixed-rate mortgage, and no cash out is permitted.
The VA does not require an appraisal or a credit underwriting package, and you have the option of rolling the refinance costs into the new loan or opting for a no cost refinance.
Additionally, a Certificate of Eligibility from the VA is not required, making a refinance a snap compared to the usual process.
HARP Streamline Refinance
You may have also heard of HARP and HARP 2.0, a streamlined loan program that allows underwater homeowners to refinance their mortgage, no matter how high their loan-to-value ratio (LTV) is.
The same simple qualification requirements (or lack thereof) apply here, though your loan must be owned by Fannie Mae or Freddie Mac, and must have been sold to the pair on or before May 31, 2009.
Additionally, your current LTV must be north of 80%, which isn’t a problem for most homeowners these days.
Finally, you must be current on your mortgage at the time of refinance, with no late payments in the past six months and no more than one late payment in the preceding 12 months.
Assuming you qualify, you should be able to get your hands on a much lower mortgage rate, even with an excessively high LTV, all with limited fees and closing costs.
Is Streamlining Your Refinance the Best Deal?
While a streamline refinance may be your easiest option, it may not be the best choice for you.
Whenever you’re in the market for a refinance, it’d be wise to take the time to shop around.
That means looking beyond your current lender and/or loan type to see if there’s something better out there.
For example, it might be better to have a conventional loan instead of an FHA loan, even if that means going through the whole underwriting process as opposed to a streamline.
You may find a lower mortgage rate with a new lender that will justify a more lengthy qualification process.
Sure, it can be a pain to refinance your mortgage, but the savings afforded each month and over your lifetime should definitely be worth your time.