If you have ever applied for a mortgage, you know how frustrating and even discouraging it can be to endure a prolonged closing and settlement period. Appraisals, title searches and other tedious and protracted underwriting procedures can make the process seem endless. But thanks to a little-known product made available in the 1980s by the Federal Housing Administration (FHA), you may have an alternative to the traditionally slow closing process. If you currently have an FHA mortgage, you may be eligible for an FHA streamline refinance, a special type of refinance program that cuts out a lot of the paperwork required to process most refinance mortgages.
Identification
An FHA streamline refinance relies primarily on the underwriting performed when the initial mortgage was written, bypassing many of the prolonged processes that can slow down the lending procedure. As a result, costs are reduced and the time required to close--or settle--on the loan is significantly shortened. In addition, streamline refinance mortgages offer several other advantages for borrowers who qualify.
Qualifications
To qualify for a streamline refinance, you must meet certain criteria: The mortgage to be refinanced must be an FHA mortgage. The loan must be current and paid up-to-date. The new monthly payment must be less than the current monthly payment. Any other federal debts must be current and paid up-to-date. The borrower must have paid at least six payments on the mortgage.
Benefits
As noted, one of the primary advantages of the FHA streamline process is that the closing and settlement procedures are much faster than those associated with traditional refinance mortgages. Most streamline products are also less expensive: because they do not require extensive underwriting, many of the associated fees are eliminated. Most streamline loans do not require appraisals or drawn-out, expensive title searches. They also usually do not require a credit check, making them ideal for borrowers with poor credit. Usually, no income verification is required. In some cases, "no-cost" loans can roll closing costs into the overall value of the loan, reducing or even eliminating your out-of-pocket costs at closing. These no-cost loans do require an appraisal, to ensure that you have enough equity in your home to cover the closing costs.
Disadvantages
If you are one of the many homeowners who want to refinance their mortgages to tap into their home's equity, the streamline mortgage is not for you. These mortgages do not allow borrowers to take out any money from the refinance, so a "cash-out" refinance--one in which you borrow against the equity in your home--is not possible. Also, although term changes may be possible in most cases, current rules do not allow borrowers to change from a 15-year to a 30-year term.
Considerations
FHA streamline refinance mortgages are available from a wide number of lenders, so be sure to shop around just as you would for any other loan product. Beware of lenders who say the loan is only available through them, that it is a limited-time offer, or that they are one of only a few select lenders who provide these loans.
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