October 17, 2017

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What Is An FHA Streamline Refinance Loan? Part Two

What is an FHA Streamline Refinance Loan?

We have been discussing the question, “What is an FHA Streamline Refinance loan?” In our previous blog post on this subject we discussed what FHA Streamline Refinance loans are, including the fact that they are intended only for FHA-to-FHA transactions only, and have no FHA-required credit check.

FHA Streamline refinance loans also generally require the borrower to get a lower payment, lower interest rate, or get into a fixed rate loan from an adjustable rate mortgage. There are some exceptions to this which you can discuss with your lender.

Those are some of the basics about what FHA Streamline refi loans are. But there is also a list of things that streamline refinances are NOT. These loans don’t permit the same things that FHA cash-out refinance loans do.

FHA Streamline Refinance Loan Limitations

Borrowers who need cash back on their refinance loan will not want to pursue the FHA Streamline option, but choose an FHA cash-out refinance instead. FHA Streamlines don’t allow any cash back to the borrower except for refunds of money paid up front for costs later financed into the loan. In short, when you apply for a Streamline Refinance, you are not applying for the same type of loan as an FHA cash-out refinance.

FHA Streamline loans require the original borrower or the new applicant must hold legal title to the property to be refinanced. According to HUD 4000.1, “At least one Borrower on the refinancing Mortgage must hold title to the Property being refinanced prior to case number assignment.”

There are further restrictions of Streamline loans for manufactured housing. From HUD 4000.1, page 408: “For a transaction involving a Manufactured Home to be considered a refinance, the Manufactured Home must have been permanently erected on a site for more than twelve months prior to case number assignment.”

On the subject of temporary interest rate buydowns, in general these aren’t allowed for FHA refinances. “Temporary interest rate buydowns are not permitted with refinance transactions” according to HUD 40001.

UFMIP Refunds For FHA Streamline Refinancing

The FHA loan handbook states, “If the Borrower is refinancing their current FHA-insured Mortgage to another FHA- insured Mortgage within 3 years, a refund credit is applied to reduce the amount of the Upfront Mortgage Insurance Premium (UFMIP) paid on the refinanced Mortgage, according to the refund schedule…” Note the time restriction-if you refinance your mortgage within three years, a refund may apply. Beyond three years, this would not be the case.

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