Is an FHA Streamline Refinance a Good Idea?
Homeowners who currently have an FHA loan may consider refinancing with an FHA streamline refinance. There is much less paperwork required and no need for a costly appraisal.
An FHA streamline refinance is a good idea for anyone who currently has an FHA loan and would benefit from a lower rate and payment as a result of the refinance.
What is an FHA Streamline Refinance?
An FHA streamline refinance is a way to refinance an existing FHA loan without having to go through the traditional income verification and documentation as a traditional mortgage.
- There is no income verification documentation required
- No tax returns are required
- No employment verification is needed
- No appraisal is needed
Lenders must verify that there is a net tangible benefit to you for refinancing your home. Read [FHA Streamline Refinance Requirements]
What is a Net Tangible Benefit
A net tangible benefit is a positive outcome or advantage for the borrower as a result of the refinance. Lenders are required by law to make sure there is a net tangible benefit for the consumer for every refinance. The benefits may include a lower interest rate, a lower payment, or a better loan term.
Is an FHA Streamline Refinance a Good Idea?
An FHA streamline refinance is a good idea if at least ONE of the following conditions are met:
- Your interest rate will be reduced
- Your payment will decrease
- Your loan term will improve
AND your loan balance is greater than 80% of the current value of your home
If none of the conditions above apply to you, then you are not going to realize a net tangible benefit and an FHA streamline refinance is likely not right for you.
If your loan balance is less than 80% of the current value of your home, you may want to consider a traditional refinance into a conventional loan. In this case, you would avoid the FHA mortgage insurance premium.
When is an FHA Streamline Refinance NOT a Good Idea?
An FHA streamline refinance is not a good idea if one or more of the following conditions apply to you:
- Your loan balance is less than 80% of the current value of your home
- Your payment or interest rate will not decrease after the refinance
- Your loan term will not improve after the refinance
We recommend speaking with one of our FHA lenders to determine whether an FHA streamline refinance is right for you.
Exceptions to the Rule – When an FHA Streamline Refinance is a Good Idea
There are two examples of when an FHA streamline refinance is your only option even though a conventional refinance would likely have been the best choice under normal circumstances.
Job Loss – If you lost your job and cannot verify income or employment, then an FHA streamline refinance is your only option. This also may hold true if you are currently working but have a large gap in employment and therefore may not qualify for another mortgage program.
Home Value Under Water – If your current mortgage balance is higher than your home value today, then an FHA streamline refinance is your only option. The streamline refinance does not require an appraisal and will use the value of the home when it was originally purchased. If the home value has declined, that will not be taken into consideration with an FHA streamline refinance.
Bottom Line
The FHA streamline refinance program is a great option for anyone who would like to refinance without all of the documentation and appraisal. It is the least painful of all mortgage types to apply for and will also close faster than a conventional refinance.