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 a home 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.
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 (e.g. lower payment or ARM to FRM)
- 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.
Also note that a streamline refinance can take just as long as a regular refinance. They aren’t necessarily faster, they’re just meant to be easier to qualify for.
FHA Streamline Refinance
- Loan must be already be FHA-insured (aka an existing FHA loan)
- The borrower must be current on payments (not delinquent)
- The refinance must result in a tangible benefit (lower mortgage payment)
- No money can go to the borrower (in excess of $500 in incidental cash)
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, making them a pioneer of sorts in the business of expedited mortgages.
Of course, they’ve become much more popular lately thanks to the mortgage crisis, which has brought down home values tremendously.
An FHA streamline refinance makes 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.
In fact, if an appraisal is conducted and it’s not favorable, the FHA will even allow lenders to ignore it and set it aside.
Additionally, because there is no credit scoring requirement and limited documentation requirements, most borrowers can qualify for an FHA streamline refinance quite effortlessly, even if they don’t have adequate income, assets, or employment.
These are known as “non-credit qualifying” streamline refis because the typical in-depth underwriting process is avoided.
It should be noted that while the FHA doesn’t require a credit report, the individual lender might as part of their own guidelines. Or they may just ask for a mortgage-only credit report.
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.
So even if it sounds risky to give a homeowner a new mortgage with very little paperwork, they’re actually just being given a more affordable mortgage.
For example, if their existing payment is $2,000 per month and a streamline refi can get their payment down to $1,500 per month, chances are they’ll have an easier time making payments. Of course, it’s never a guarantee.
Use a refinance calculator to determine how much you can save in the way of monthly mortgage payments.
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.
You can even streamline a 203k loan to the standard 203b FHA loan program with some lenders.
There are cases when income will be verified and DTI ratios computed, but only if the refinance increases the mortgage payment by 20% or more, if a borrower is removed triggering the due-on-sale clause, or following a loan assumption.
In these scenarios, a streamline is still possible but it has to be “credit qualifying,” which is a bit more involved underwriting wise.
FHA Streamline Seasoning Requirements
Aside from the details discussed above, there are seasoning requirements that must also be met, 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
If the loan is less than 12 months old, you aren’t allowed any mortgage lates. If it’s greater than 12 months, you are permitted no more than one 30-day late payment in the preceding 12 months.
And the three most recent payments must have been timely.
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. And most people gravitate to this program for that appraisal waiver.
To sum it up, because no appraisal is required, the FHA streamline refinance is an excellent option for those who are underwater on their mortgages, of which there are many.
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
- A streamline is also possible for VA loans
- It’s known as an IRRRL
- Process can be very quick and easy
- And doesn’t require an appraisal or COE
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.
Additionally, a Certificate of Eligibility from the VA is not required, making a refinance a snap compared to the usual process.
HARP Streamline Refinance
- A popular streamline solution
- For borrowers with Fannie Mae and Freddie Mac loans
- LTV must be greater than 80% (there’s no maximum limit)
- But loan must have been originated on or before May 31, 2009
This is now known as a High LTV Refinance.
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?
- Sometimes the easiest option isn’t the cheapest one
- So make sure the streamline refinance is actually the best deal
- It should have the lowest interest rate and closing costs
- Relative to other mortgage programs you may qualify for
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’s 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 involved 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.
Read more: When to refinance your mortgage.