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.