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The Federal Housing Administration (FHA) makes available a convenient streamline refinance program for homeowners. The plan allows borrowers to refinance their existing FHA mortgages into new loans at lower interest rates. The streamline applies to reduction of paperwork and easing the underwriting process so that a borrower may avail of the refinance package promptly.
The primary constraint for qualifying for a streamline package is that your original loan must be an FHA insured product. You must be current with your repayments on the loan. If you are slightly behind your schedule, you must make a payment right away before applying for the streamline mortgage.
A streamline refinance implies that the lender will use the documents, which you provided for the application for the original mortgage. These include bank account statements, credit reports, tax returns, property appraisal reports and the other items of paperwork submitted at the time. This shortens the underwriting process, enabling you to avail of low rates in the market.
However, you need to provide a couple of your most recent pay stubs as the only additional information. The lender will assess your income details to check that you can meet the monthly repayments of the refinance package. Your debt to income ratio will not be a consideration for the granting of a streamline refinance.
You will have to attend the closing to sign the new loan documents based on the information provided by the original documents. Since the FHA does not permit lenders to charge closing costs separately, you lender may charge a slightly higher interest rate for the package than that prevalent in the market.
An FHA streamline refinance ensures other benefits apart from enabling you to get your loan package swiftly. It is almost half the cost of a regular refinance loan. The chances of a lender turning you down for a package are negligible, as the lender will assess your original documents, which qualified you for the package. Additionally, since the lender does not check your credit report, your credit rating does not suffer. Every time a lender views your credit report for granting you a loan, your score drops by several points.
The FHA streamline plan does not permit a borrower to take cash out refinance. A homeowner cannot avail of the equity in the home to pay for major expenses with an FHA streamline mortgage.