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FHA Streamline Refinance Program: Who, What, and Why

by Karen Lawson
September 10th, 2009

The Federal Housing Administration (FHA) is offering a streamline refinance option to homeowners who have FHA mortgage loans. In order to be eligible for streamline refinancing, you must meet these criteria:

  • Your existing mortgage is insured by FHA (you have an “FHA loan.”)
  • Mortgage payments on existing mortgage loan are current (defined as not more than 30 days past due on mortgage payments)
  • The streamline refinancing program is limited to refinancing intended to lower monthly mortgage payments. You may not refinance for additional cash with a streamline refinance. 

Mortgage lenders offer three options for paying closing costs on streamline refinance transactions:

  • “No closing costs:” Actually, you’ll pay closing costs with a higher mortgage rate. Your lender absorbs the closing costs, and you repay them over time with a higher mortgage rate.
  • Roll closing costs into refinance amount: This means that your new mortgage amount will include the closing costs. As a general example, if you’re refinancing for $275,000 and your closing costs are $3000, your new mortgage amount would be $278,000. This option is only available if you have enough home equity as documented by a residential real estate appraisal. If you don’t have an appraisal, you can refinance for no more than your existing mortgage balance.
  • Pay closing costs “up front”:  This is the traditional method of paying closing costs; you contribute enough cash to pay closing costs when your refinancing is completed, or “closed.”

Who Can Benefit From an FHA Refinance?

  • Homeowners struggling with monthly payments:FHA refinancing provides an opportunity for reducing higher than market mortgage rates. By lowering the interest rate of your mortgage loan, your monthly P& I payments will also decrease. This provides financial flexibility, and can make pre-paying your mortgage loan easier.
  • Homeowners with credit issues:  As long as you can qualify under streamline refinancing program requirements, it won’t matter if you’ve had credit problems including bankruptcy.

Why Stay with FHA?

Of course it’s prudent to shop FHA mortgage rates and terms, but lenders may offer non-FHA mortgage refinance options. Here are some benefits of staying with an FHA loan:

  • No pre-payment penalty: FHA loans have no pre-payment penalties This means that if you choose to pay your mortgage off early, or sell your home , you won’t be charged a penalty.
  • FHA mortage loans are fully assumable:  If you sell your home, and the buyers can qualify under FHA mortgage guidelines, they may assume your mortgage loan. This can be a big plus for attracting buyers, as i allows them to take over your mortgage payments with minimal mortgage underwriting.
  • FHA provides homeowner assistance programs: FHA offers troubled homeowners a variety of loss mitigation and foreclosure prevention options through their mortgage loan servicers. If you ever have problems making payments, FHA programs can help save your home from foreclosure.

Refinancing your mortgage loan with FHA’s streamline refinance program can help you stabilize your finances, save money on mortgage rates, and offers flexibility not always available with other mortgage loans.

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This entry was posted on Thursday, September 10th, 2009 at 12:45 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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