At this time last year, most people thought interest rates would continue a steady climb higher as a way to cool a hot economy, and anyone who could have benefited from a refinance probably had done so when rates were below 4 percent.
And, indeed, rates started going over 5 percent in late summer and the fall for people with decent credit. Starting early this year, interest rates started slowly slipping. That development has been putting a lot of people who bought their house with an FHA 30-year-fixed loan in the past year or so in a good position to save money with an FHA Streamline Refinance. Now, let's go into the FHA streamline refinance guidelines.
The Most Important Requirement in the FHA Streamline Refinance Guidelines
The FHA Streamline Refinance guidelines dictate that borrowers must get a net benefit from the refinance, which might include going from an adjustable rate to a fixed rate. But it often means that the loan officer must ensure you are getting a new rate that is a half-percent lower -- or better -- than your current loan.
For example, if you had a rate of 5 percent, then the loan officer would need to get you a rate at least at 4.5 percent. And that would be the starting point. While rates change daily, it is not unusual this summer to get rates below 4 percent.
The savings could be substantial, depending on the actual rate and the amount of the loan. As an example, someone with a 5 percent rate and a $250,000 loan could save about $184 per month in principal and interest by taking advantage of the FHA Streamline at a rate of 3.75 percent. For a lot of people, that would cover a cable bill, water bill and a few other things. Over 30 years, the savings truly add up.
Understand a Little Better Now? Great, Now Here Are the Only Documents You Need
One of the best parts about the FHA Streamline is exactly what the phrase entails -- much less paperwork than what you needed to buy your home. The assumption is that you were qualified to buy when you did, so why not let you take advantage of the falling rates with as little fuss as possible.
There is no appraisal since the loan is based on the original purchase price, and there is no need for an inspection, of course. You don’t need to collect pay stubs or income tax documents or bank statements. In fact, you can get a streamline essentially by providing these basic documents:
- Your most recent mortgage statement: The loan officer will use this information to determine your refinancing details.
- A copy of your driver’s license and social security card.
- A copy of your homeowner’s insurance declarations page.
- A copy of a utility bill.
If you are organized and can find that big, thick packet that you got at closing when you bought your home, you should be able to find these two items with ease:
- The final Closing Disclosure: This will be about five pages and likely will be in the front of that packet.
- All pages of the NOTE. This literally will say NOTE at the top and is the document that spells out your current loan. It will be about three pages or so.
The FHA streamline refinance guidelines also requires you to have been making payments for at least six months, and you cannot have been late on a payment by more than 30 days.
At some companies, loan officers will cover the closing costs, and they can help structure the loan so that there is no additional money coming out of your pocket.
The process takes a few weeks to a month, especially if you are good with modern technology that allows for e-signing documents. That speed usually means you can close before you would need to make the next payment to your current lender. Your loan officer can advise you on the best ways to time the closing so you get the most benefits.
The FHA Streamline is designed to be an FHA to an FHA loan. If you have a lot of equity in your home, you might want to consider refinancing into a conventional loan, a move that would mean you could get rid of the mortgage insurance if the equity is 20 percent or higher.
Furthermore, that decision wouldn’t be a streamline and would require full documentation, which would be similar to the process that you went through when you first bought your home. Still, that might make sense, if you had the time and inclination to do so, and your lender can help you navigate the pros and cons.
If you have any more questions about the FHA streamline refinance guidelines, contact one of our mortgage experts today!
Thomas A. Barstow is a licensed loan officer with City Lending. His office is in Timonium, MD, and his NMLS number is 1590611.