• Home
  • Rates
  • VA Streamline Refinance
  • Available States
    • Nationwide Quotes
    • Arizona
    • California
    • Colorado
    • Florida
    • Georgia
    • Michigan
    • Missouri
    • New Mexico
    • Ohio
    • Pennsylvania
    • Texas
  • Blog

FHA Streamline

What are the Net Tangible Benefit Requirements for an FHA Streamline Refinance?

July 25, 2016 By Justin McHood

What are the Net Tangible Benefit Requirements for an FHA Streamline Refinance?

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.

Filed Under: FHA Streamline Guidelines

OUR EXPERTS SEEN ON

IMPORTANT MORTGAGE DISCLOSURES:

When inquiring about a mortgage on this site, this is not a mortgage application. Upon the completion of your inquiry, we will work hard to match you with a lender who may assist you with a mortgage application and provide mortgage product eligibility requirements for your individual situation.

Any mortgage product that a lender may offer you will carry fees or costs including closing costs, origination points, and/or refinancing fees. In many instances, fees or costs can amount to several thousand dollars and can be due upon the origination of the mortgage credit product.

When applying for a mortgage credit product, lenders will commonly require you to provide a valid social security number and submit to a credit check . Consumers who do not have the minimum acceptable credit required by the lender are unlikely to be approved for mortgage refinancing.

Minimum credit ratings may vary according to lender and mortgage product. In the event that you do not qualify for a credit rating based on the required minimum credit rating, a lender may or may not introduce you to a credit counseling service or credit improvement company who may or may not be able to assist you with improving your credit for a fee.

Copyright © Mortgage.info is not a government agency or a lender. Not affiliated with HUD, FHA, VA, FNMA or GNMA. We work hard to match you with local lenders for the mortgage you inquire about. This is not an offer to lend and we are not affiliated with your current mortgage servicer.

Contact Us | Terms of Use | Privacy Policy

Mortgage.info

NMLS ID #1237615 | AZMB #0928735

8123 South Interport Blvd. Suite A, Englewood, CO 80112

CLICK TO SEE TODAY'S RATES