The idea behind the FHA streamline refinance is to help borrowers obtain a loan that will benefit them more than the loan they are in.  This is why the FHA requires a net tangible benefit in order to qualify for the loan. It is not enough to show that you made your last 12 months’ worth of mortgage payments on time or that you have stellar credit or even that your property value went up – the FHA needs to know that there is ample benefit in you taking on a new mortgage, essentially because this means that you will be starting over again on the term of your loan. In fact, even lowering the term of your mortgage, say from a 30-year mortgage to a 15-year mortgage, is not enough of a benefit. The net tangible benefit has to meet one of the strict criteria that the FHA has set.

The Real Net Tangible Benefits

The real net tangible benefits that the FHA sees as a good enough reason to refinance include:

• A lower payment, but not just by a little bit – you must be able to prove that your new payment with the principal, interest, and new MIP will be at least 5% lower than your current payment.
• Refinancing from an ARM to a fixed rate loan is another reason; however, you still have to prove that your payment will be at least 5% lower with the principal, interest, and MIP in order to qualify.

Things to Watch For

Sometimes, even though your interest rate is decreasing, your payment might not decrease enough to hit that 5% rule. This is usually because of an increase in MIP. The rates for the mortgage insurance premium have increased throughout the years, so if you originated your FHA loan a few years ago, the new MIP rates might put your payment over the 5% decrease threshold, forcing you to be ineligible for the program.

Exceptions to the Rule

If you are refinancing from an adjustable rate mortgage into a fixed rate mortgage, you might be able to get around the 5% payment reduction rule. The only way to do this is to refinance after your initial adjustment period begins. If you are out of the fixed rate period and are now in the annual adjustment period, you can refinance into a fixed rate loan without the 5% rule, giving you a little more leeway in your quest to refinance.

Another exception to the rule is if you refinance from a 15 or 20-year term into a 30-year term. This is not a common scenario, but if you need lower payments, you will get them by extending the term. This new payment will meet the 5% rule by default, enabling you to take advantage of the FHA streamline refinance program.

Getting Around the Payment Requirement

If you really want to refinance with the streamline program, you can find a way to get around the 5% rule either by shopping around with several lenders until you find one that gives you the interest rate that will lower your payment enough or by negotiating the rate with one particular lender. There are ways to get your interest rate lower than what the lender quotes you, especially if you have compensating factors or you can afford to buy the interest rate down.

Overall, the FHA streamline refinance is a great way to lower your payment and get favorable terms on your mortgage. If you find that you have difficulty qualifying for the loan because of the 5% rule, talk to your lender to see what you can do to work around the requirement. Oftentimes there are ways to get through and get the streamline program you desire.

The FHA streamline refinance enables you to refinance a current FHA loan into another FHA loan with very little verification. Because of the lack of verification required, you are maximized on the amount you can refinance. Without an appraisal, you cannot include the closing costs for the loan, so any money you have to bring to the table, you will have to verify with appropriate bank statements with seasoned funds. That being said, here is the calculation used to determine how much money you can borrow with your FHA streamline refinance.

Start with your Unpaid Principal Balance

The first number you will need is the unpaid principal balance on your current FHA loan. This amount can be found on your latest mortgage statement from your loan servicer or obtained when you order a loan payoff. The unpaid principal balance is strictly the loan balance – it cannot include any late fees, shortages from your escrow account, or late interest fees. This is the base amount to start with in your calculation.

Interest on the Current FHA Loan

You will add to the unpaid principal balance any interest that will be due on your current FHA loan that the new lender will pay off. This interest will be charged according to the intended payoff date. If the payoff is not received by the current lender by the 1^st of the month, you will have a month of interest to add to your loan amount. The maximum amount of interest you can add for the current loan is 60 days or two months.

MIP Refund

If you are applying for the FHA streamline refinance within 36 months of obtaining the original FHA loan, you will receive an upfront MIP refund from your original loan. This amount gets subtracted from your loan amount as it is a credit towards your new loan. The amount you can receive depends on the length of time that has passed since you obtained the original FHA loan. The refund starts at the 6 month mark as you are required to make 6 payments before you can refinance in the streamline program. At that 6 month mark, you would receive 70% of the upfront MIP that you paid back, putting it towards your new loan amount. As the months pass, the amount goes down 2% each month. By the 36^th month, you would receive 10% of the amount you paid back towards your new loan.

The Base Loan Amount

Once you have your base loan amount plus the amount of interest charged on the new loan minus the MIP refund, you have your base loan amount. This new amount still needs upfront MIP added to the new loan, though. So you take this new amount and multiply it by the new upfront MIP factor, which is 1.75%. On a $200,000 loan that would be $3,500. That $3,500 would get added to the base loan amount to arrive at your maximum loan amount for your FHA streamline refinance.

Figuring out your maximum loan amount for the streamline refinance is simple as long as you have a few basic figures. Your new lender can help you figure out your maximum loan amount, but if you want to do it yourself, these basic numbers can help you. Keep in mind that if you do not plan on financing the upfront MIP on the new loan, you will be required to provide adequate asset statements proving that you have the money necessary to pay the charge at the closing. The sooner you refinance your mortgage after obtaining the original loan, the higher the upfront MIP refund you will receive and the less you will have to finance into your new loan.

FHA streamline refinance transactions are a somewhat uncomplicated process to go through. The idea of the program is to provide FHA loan holders with the chance to refinance their loan into one with a lower rate, therefore, making the loan more affordable. As is the case with any loan program, there are restrictions for the program, including the subordinate financing that is allowed when you use the streamline program.

Subordinating Again

The idea behind the streamline program is not to provide any cash out, the maximum loan amount is based on the outstanding principal balance, plus any interest charged on the current loan, and the upfront MIP charged, minus any refund that you are eligible to receive. This means that any subordinated liens cannot be paid off with the streamline program. You must get the 2^nd mortgage lienholder to subordinate the loan again in order to proceed. Typically this is not an issue since the mortgage company already holds 2^nd lien position and it puts them in a better position to continue being paid on time if you lower the interest rate on your first loan.

New Subordinate Financing

If you wish to take on new subordinate financing during the FHA streamline transaction, you will have to prove the reason that you are taking out the new mortgage is for one of the following reasons:

• Bring down the principal balance of the current FHA 1^st lien
• Pay the closing costs and other lender fees charged in FHA streamline refinance transactions, such as origination or discount fees

You cannot take out new subordinate financing at the same time that you are going through the FHA streamline refinance process in order to make any changes to your home, pay off debt, or use any other reasons to take cash out of your home. You will have to do that at a later time after refinancing the first mortgage if you wish to lower the interest rate on your FHA loan.

Taking Advantage of the FHA Streamline

The FHA streamline refinance program has many advantages. If you are considering taking out a 2^nd lien, but need to do so in order to take cash out of the property for reasons other than above, it is best to wait until after your streamline refinance transaction takes place. The advantages of the streamline program include:

• Lower interest rate
• No appraisal required with most lenders
• No income doc requirements with most lenders
• No credit score requirements with most lenders

Basically, you can save money every month on your 1^st mortgage without re-verifying anything. There are not any other loan programs that will enable you to refinance so easily, so it makes sense to hold off on any other financial transactions until you get your 1^st lien payment lowered, this way you can have more disposable income, and a higher likelihood of getting approved for that 2^nd lien which will likely be considered a cash-out transaction and have harsher requirements that include higher credit scores and lower debt ratios.

Every lender has different requirements when it comes to FHA streamline refinance transactions, but one that the FHA holds them to is the subordinate financing rules. There are no ways around this rule, so you must follow them to the “T.” If you already have subordinate financing, start working with the 2^nd lienholder early on in order to get the approval to subordinate the financing again. This process can take a while depending on the lender, so it pays to start early in an effort to ward off any issues that might come your way during the process.

The FHA Streamline Program makes it very easy to refinance your current FHA loan. If you obtained your current FHA loan a while ago when interest rates were higher, it might be to your benefit to refinance now for no other reason than you can save money. That is what the FHA Streamline loan is all about – strictly lowering your payment. What makes it streamline, though? Here is a quick rundown:

• You do not need to provide new income documentation – the documents from your original FHA loan apply
• You do not need to have your employment verified again, which means that you can potentially be without a job right now and still get a new loan
• You do not need a new appraisal – the original appraisal from your current FHA loan can be used, which means you could potentially be underwater (owe more than the house is worth) and still refinance

Of course, these guidelines are only true if the lender you choose decides to use them. Every lender can place their own requirements on a loan if they see fit. For example, if a lender knows that the area your home is located in has seen a huge hit in the value, they may require you to get a new appraisal to see if you are underwater. Some lenders might ignore this fact though, simply because the purpose of the streamline program is to lower your payment, making it easy to afford.

The Housing Payment is the Most Important Factor

Now that we talked about everything the FHA does NOT require, let’s look at the one factor that they do require no ifs, ands, or buts about it. This factor is your housing history; this is where the FHA places the most importance. They want to see that your housing history is clean, or mostly clean. The FHA requires that your last 3 months’ worth of housing payments be made on time; there cannot be any late payments during that time. The 9 months that precede the last 3 months can have a maximum of one late housing payment during that time. This late payment also cannot be more than 30 days late and you must have brought your account current by the time you apply for the streamline program.

Why does the FHA care so much about your housing history and nothing else? It’s simple – if you have been making your current housing payments on time, it will be even easier to afford your new mortgage payment since it will be lower. That is the caveat of the FHA Streamline Program – you have to be able to lower your payment, which usually means lowering your interest rate in order to qualify. If you do not lower your payment, you must be doing one of the following in order to still qualify:

• Refinancing from an adjustable rate mortgage into a fixed rate mortgage – The fixed rate mortgage is much more secure than an ARM, making it a positive change in your mortgage, which the FHA allows
• Refinance from a 30-year term into a lower term – The less time you have the bank’s money outstanding, the less risky the loan, which is why changing the term will allow you to get approved for the Streamline Program, even if your payment does increase

The whole idea behind the FHA Streamline Program is to make your payment more affordable, which means decreasing your risk of defaulting on the loan. It is for this reason that the FHA is rather lenient when it comes to qualifying for the program – they assume since you qualified originally, you would still qualify now as long as your housing payments have been made on time. If your housing payments have not been made on time, then what does the lender have to go on to ensure that you will continue to make the new payments on time? The point behind the program is to make loans less risky, not more, so make sure to get your housing history in sync before applying for the program.

One of the hardest things for many homeowners in the last few years is the fact that they owe more on their home than their home is worth. This is not because they bought a “bad” house; it is because of the downturn the housing industry took. As it slowly makes a comeback in many areas, there are still millions of homeowners that find themselves stuck in the home they are in and the rate that they have because their outstanding loan amount is higher than the value of their home. If you have an FHA loan, however, there is good news – the FHA Streamline Program can give you a way out of this underwater issue you have right now.

What is the FHA Streamline Program?

The FHA Streamline Program is an FHA to FHA refinance. You have to currently hold an FHA mortgage in order to qualify. If you do, the requirements to qualify are very simple:

• Your housing payments must be on time. For the FHA Streamline program this means no late housing payments in the last 3 months preceding your application. It also means no more than one 30-day late payment in the 9 months before then.
• The new payment must be lower than your current payment unless you are refinancing out of an adjustable rate mortgage or refinancing into a shorter term
• You must have made at least 6 payments on your current FHA loan
• You must have the money to pay the closing costs on the new loan

Typically, that is all you need. The premise behind the FHA Streamline is to lower your payment to make it more affordable. This is why the FHA allows underwater homeowners to refinance. It makes sense to give them a loan that they can afford in order to entice them to stick it out rather than walk away from their upside down investment.

What is Required for a FHA Streamline Refinance?

Unlike most other loan programs, there is not a lot of documentation required for the FHA Streamline Program. For starters, you do not need an appraisal. This is how underwater homeowners refinance. You are able to use the value from your original appraisal. Granted, there are some lenders that will require a new appraisal, especially if they know the area you live has seen a large hit in value, but according to the FHA, this is not necessary. If there is a lender that requires an appraisal, shop around with other lenders to find one that does not, if you know you are upside down.

Generally, you do not have to verify much else aside from the above requirements. Lenders are not required to verify employment, income, or even a credit score. If the borrower qualified for an FHA loan originally, he qualifies for the Streamline Program. Because lenders are the ones giving out the money, though, many lenders will place their own requirements over what the FHA states just to protect themselves.

In the end, the FHA Streamline Program is meant to help people with an FHA loan make their payments more affordable in order to decrease the risk of default. If you know you are underwater and you have a higher interest rate than what is offered today, it makes sense to refinance. You will receive a refund of a portion of the upfront mortgage insurance you paid on the original loan if you took it out less than 3 years ago and the closing costs are not outrageous on this program, making it easy to afford the refinance and save money on your payments every month, helping you to gain some of that equity back that you lost with the housing crisis.