October 13, 2021
Are you interested in a lower interest rate on your home loan? What about a lower monthly payment? Or perhaps you are in an adjustable-rate mortgage and are looking for a way out before your next rate adjustment?
These are all motivations to refinance. You’ll read plenty online about what it means to apply for an FHA Streamline refinance, but what do you need to know aside from the things EVERY home loan website talks about?
Yes, FHA Streamline Refinance loans are for existing FHA borrowers only. Yes, FHA Streamlines normally require the borrower to get a tangible benefit from the loan like a lower rate, a lower monthly payment, etc.
Yes, FHA Streamlines have no FHA-required credit check or appraisal requirement. And yes, the lender is free to require those anyway.
These are common issues surrounding this type of refinance loan. And no, don’t expect to pull equity from the home in cash with this type of refi.
Here’s some expert advice you might not see on other lending blogs: the FHA loan rules in HUD 4000.1 state clearly that you may be allowed to apply for a Streamline refinance and be approved (technically, lender requirements may also apply) even if the new loan actually winds up costing more than the old loan in terms of interest rates and/or monthly payments.
Some of that is well-traveled territory on finance and mortgage blogs. You’ll read plenty about how an adjustable-rate mortgage that gets refinanced into an FHA fixed-rate mortgage could actually have a higher rate than you were paying previously.
The fixed rate is considered the benefit, not the interest rate itself.
But less well-known? Less discussed? FHA Streamline loans allow the same kinds of add-ons to the mortgage as “ordinary” refinance and purchase loans–specifically the FHA Energy-Efficient Mortgage which allows extra loan funds to pay for approved energy-saving upgrades to the home.
This add-on may increase your mortgage payment and if the overall amount increases by too much the lender may require a credit-qualifying FHA Streamline instead of the no-credit-check FHA Streamline option.
Another bit of expert advice about FHA Streamline Refinance loans? Dealing with closing costs. It may be a bit tough to pay your closing costs up front, but if your goal is to get a lower rate or payment, keeping the new loan amount as low as possible will be an important factor.
If you can afford it, avoid financing closing costs or even the Energy-Efficient Mortgage option. Lower payments may be within your reach but you should definitely try to keep the new loan as low as possible.