December 2nd, 2014 3:42 PM by Gregg Mower
You might have heard of a Streamline Refinance with regards to your current mortgage but you may not know exactly what it means to you and your ability to refinance your home. Let’s start by definition of what a Streamline Refinance means to a lender and ultimately you. This term was actually coined by FHA when they came up with a refinance program to help those with high interest rates and a good payment history to reduce their monthly mortgage payments. Initially the Federal Housing Administration (FHA) came out with this program in the early 1980’s to help home owners, who had existing FHA loans and had made the payments on time for the last 12 months, lower their monthly payments without having to go through the hassle of an appraisal and income verification. Thus, the streamlined process of getting your FHA loan refinanced. Although, this very loan exists today it has evolved into many different hybrid ways of accomplishing the same results.
A FHA streamline refinance today varies only with the onset of credit scoring. Lenders have adopted different interest rate levels for FHA streamline refinances and they all revolve around the credit score of the borrower. Although the credit score is not a requirement of a Streamline refinance it does, however, provide for better interest rates if the borrower allows the lender to pull a credit score and that score is greater than 640. The lender will have to verify that the mortgage has been paid on time for the last 12 consecutive months in order to qualify for the streamline program anyway, and that can be done on a credit report with a score, or it can be done with a mortgage only report that shows only the mortgage history, or the borrower can provide 12 consecutive months of cancelled checks showing the mortgage paid on time. Bottom-line is; if you have made your payments on time for the last 12 months, and you have an existing FHA loan you will qualify for a Streamline Refinance Program.
The next part of the FHA Streamline Loan that makes it unique is the fact that there is no appraisal required. This is helpful for not just the cost and time an appraisal takes but it if your home’s value has decreased at all, having no appraisal will allow you to refinance even if your house is valued at less than what you owe. The appraisal could also, potentially, bring up work that may need to be done on your home before you could obtain financing. It generally takes a week or two to get an appraisal, so without that time in the process the loan can be done a lot faster.
No income verification is a big part of the streamline loan. Although, you must be employed either by an employer or self-employed, you don’t have to income qualify. What that means is, simply, the amount of income you receive monthly does not matter to the qualifications required to do a streamline refinance. In a normal full qualifying loan your total monthly bills and house payment should not exceed 45% of your total gross monthly income. With a Streamline refinance this process does not take place. The idea is; if you have paid your mortgage on time at the higher rate than you should be able to pay your mortgage on time at the lower rate. This is actually smart thinking and to think it came from our government, of course with the industry’s help.
Streamline Refinances are not limited to FHA, although they are the ones that coined the phrase. You may have heard the term used with VA and Conventional loans. This is somewhat true but they are actually called by different names. The VA streamline loan is called an Interest Rate Reduction Refinance Loan or IRRRL. This works on the same premise as the FHA Streamline, the major difference is that you need to be a Veteran to qualify for this and you must be refinancing an existing Veterans Administration Loan or VA loan. The IRRRL still has no appraisal or income verification requirements similar to FHA. The Conventional Streamline really does not exist in the true form like the FHA streamline and the VA IRRRL loans. The conventional version is called a Home Affordable Refinance Program or HARP. The HARP loan is designed to help those folks who owe more than their home is currently valued at. The HARP Loan is designed to allow a home owner refinance to a lower rate if their home is valued less than the amount of the loan. You will need to have an appraisal and you will need to income qualify for this type of loan as well as having made your payments on time for the last 12 months. The HARP loan will only work for loans that are secured by the Federal National Mortgage Association (FNMA), or secured by the Federal Home Loan Mortgage Corporation (FHLMC). The only way you can know if your conventional loan has been secured by either of these two Government Sponsored Enterprises (GSE) is to go to their website and enter your name and address and the last 4 digits of your social security number and the site will let you know if your mortgage qualifies for the program. If you know your original loan was a “Jumbo Loan” when you first took it out, chances are your loan will not qualify for the HARP program.
We now know that the term “Streamline Refinance” has been used for other types of refinancing other than the original intend from FHA. On our Streamline Refinance FHA page, on this site, you can get the details you need to know about FHA Streamline refinances and the mortgage insurance cut-off dates. You can also go to our VA Interest Rate Reduction Refinance Loan or IRRRL page and learn more of the documents and requirements needed to get one of these loans. Our HARP page has the links to FNMA and FHLMC sites to see if your loan qualifies for these programs. This article is designed as an overview of the different types of Streamlines Refinances available in today’s world. We look forward to assisting you with your refinancing needs and questions. You are welcome to respond to this article or go to any page within our site and provide your information securely and we will give you a free analysis of your current mortgage. Or call directly at (916) 672-6130.