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.