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In a bid to control losses associated with its home loan programs, FHA is tightening requirements for insuring mortgages under its streamline refinance program. Many homeowners will remain eligible for refinancing through FHA's streamline program, but refinancing may take longer.

FHA Streamline? Refinance Now to Avoid Lost Opportunity

Today, the biggest advantage of FHA streamline refinances is as long as you don't roll the refinance costs into the loan, FHA doesn't require an appraisal, income verification, or credit qualifying. So even if your home's value has dropped through the floor and your credit rating has tanked, you can refinance easily into a better FHA loan. That opportunity will disappear soon.

Among changes to FHA programs becoming effective January 1, 2010 are key adjustments to the streamline refinance program. Here are some highlights of changes that can directly impact homeowners refinancing FHA home loans using the streamline program.

  • Seasoning: At the time of application, borrowers must have made a minimum of six payments on the mortgage loan being refinanced. This policy helps guard against rapid sequential cash out refinancing, which increases the risk of mortgage default.
  • Payment history: For mortgages with less than 12 payments made, all payments must have been made within 30 days of their due date. For mortgage loans with more than 13 payments made, no payment may have been made more than 30 days late within the preceding 12 months. All payments must have been made on time during the three months preceding the refinance application.
  • Verification of assets needed for closing: Lenders must verify sources of closing costs.
  • Certification of income and employment: Lenders must certify to FHA that they've verified borrower income and employment.
  • Credit scores: If credit scores are available, they must be included with the application. If more than one credit score is available, all must be included.
  • Combined loan-to-value (CLTV): If a subordinate lien (home equity loan or line of credit) will remain in place, the CLTV cannot exceed 125% based on the original home value if there's no new appraisal, and 125% of the home's current appraised value for loans with a current appraisal.

Contact FHA approved lenders for further details about requirements for streamline refinancing. These home loans can provide affordable refinancing in situations where homes have lost value since the original home loan was made.

Karen Lawson
Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.