The FHA Streamline Refinance is a wonderful loan product. FHA Streamline Refinances help FHA mortgage holders lower their payment and reduce their interest rate, mortgage insurance rate or both. FHA has only three underwriting guidelines that preclude a consumer from taking advantage of this unmatched loan product:
1. Income. An FHA mortgage holder must be employed or have income from an acceptable source. It does not matter where you are employed, how long you have been employed or how much you earn. Part-time employment is acceptable. Commission earnings are acceptable. Just about any type of legitimate income is acceptable. Additionally, retirement benefits, Social Security benefits, disability benefits...all acceptable forms of income on a streamline refinance.
2. Reduction in rate or mortgage insurance. You must reduce the combination of your interest rate + your mortgage insurance rate by at least half of one percent (0.50%) in order to meet FHA's benefit to borrower requirement.
Example #1: If you currently have an interest rate of 4.25% and the interest rate on your new loan will be 3.75%, then you qualify.
Example #2: If your current interest rate is 3.75% but you will be reducing your mortgage insurance rate from 1.35% to 0.85%, you qualify.
Example #3: If your current interest rate is 4.00% and your current MI rate is 1.25% and the interest rate on the new loan will be 3.75% and the mortgage insurance rate is reduced to 0.85% then you will qualify because the combination of savings meets the 0.50% minimum reduction required to meet FHA's minimum benefit to borrower requirement.
3. Late Mortgage payments. A late payment occurs when a FHA mortgage holder fails to make a payment during the entire month that their payment is due. This DOES NOT INCLUDE payments made after the 15th of the month but before the end of the month. An FHA mortgage holder must have completely skipped the entire month without making a payment before they are considered late for the purposes of a Streamline Refinance. FHA limits the number of late mortgage payments an FHA mortgage holder can have and still be eligible for a Streamline Refinance to one late mortgage payment in the last 12 months and no late payments within the last 6 months. Additional mortgage lates will require an FHA mortgage holder to wait until the late payments meet those guidelines before they will be eligible for a Streamline Refinance.
The absence of additional underwriting guidelines that would prohibit refinancing makes this loan unique amongst loan products. Consumers with FHA loans are allowed to refinance their mortgage without having to re-qualify for the new loan. This means that consumers do not have to submit tax returns, pay stubs, bank statements or W2's. Additionally, no appraisal is required on streamline refinances as the value of the consumer's home is irrelevant on an FHA Streamline Refinance. Additionally, it does not matter if you have had a recent short-sale, foreclosure or bankruptcy.
When FHA loan holders hear this there is generally some skepticism. Questions like: "why would a bank not care about how much money I earn or how much the asset (my house) that is used for collateral for the loan is worth?" We frequently hear: "this sounds too good to be true." Here is an explanation for why a bank would process a loan without verifying income, assets or the value of your home:
HUD, The federal government's Department of Housing and Urban Development, which oversees and sets the guidelines for FHA loans has already guaranteed the bank holding your loan against loss if the consumer defaults. FHA is already on the line for any losses incurred by a foreclosure so allowing a consumer to refinance to a lower payment only strengthens that consumer's financial position which makes a mortgage default less likely. Additionally, when a consumer refinances, it allows HUD to generate additional mortgage insurance which helps finance HUD and keeps FHA mortgages available.
In short, FHA reduces their risk while generating additional revenue without taking on any additional new liabilities. When you think about it...it is actually a stroke of genius to allow consumers to do this. Everyone, except your current mortgage holder who is charging you a higher interest rate benefits from the Streamline Refinance. Consumers save tens of thousands or even hundreds of thousands of dollars in interest and or mortgage insurance and HUD generates revenue and reduces potential losses.
Q. Is it really free?
A. Yes. The bank will pay your loan origination fees, escrow fees, title insurance costs, underwriting fee, notary fee, recording fee and in many cases even contribute money for your property tax and homeowner's insurance impounds.
Q. Why would a bank pay for me to refinance?
A. Banks make money when they generate mortgages and lose money when consumers pay their mortgages off. As consumers refinance their mortgages, banks must make new loans if they want to stay in business. This generates competition and results in banks offering money to consumers that is used to pay the costs.
Q. Do I qualify to streamline refinance my house?
A. Qualifying for a Streamline Refinance is very easy but not everyone will qualify. You must have an FHA loan and you must be employed (or be receiving Social Security or retirement income). After those two requirements, the rest of the details will only affect the terms of your loan…not whether you can get the loan. Even if you have a previous short-sale, foreclosure or bankruptcy you can still qualify for a Streamline Refinance.
Q. How much will I save?
A. The amount an individual will save can be determined in 5 minutes with a phone call. Obviously the higher the interest rate you are paying and the larger your loan amount is will result in greater savings but at a minimum you will save at least half a percent and probably much more if you have not refinanced since January of 2015.
Q. I get 10 offers a day...how can I tell what is a real offer?
A. Obviously there are going to be unscrupulous people who are going to lie to you. There will be people who will send you fake offers to try to get you to call and they will use small print to deceive you. That is just a fact of life we all have to deal with in every aspect of our lives.
The problem in discerning the truth on the Streamline Refinance is that many of my clients frequently tell me that they thought my offer was "too good to be true" and that kept them from calling initially. A free refinance, where my costs are paid and money is given to me to pay some or all of my tax impounds, and I get to skip two payments, and my rate is lower and my mortgage insurance rate is less, etc. etc...that all sounds too good to be true and that it is a legitimate offer.
Where you can tell if the offers are fake is if the interest rate is too low because we all get our money at the same source (the sale of government mortgage bonds) and in the small print where a mortgage company can offer you an Adjustable Rate Mortgage rate but make you think it is a fixed rate. Or, they can put out a rate that only a small fraction of consumers can qualify for credit-score-wise and then when the average consumer calls in they get the actual rate.
Q. How do I get started?
A. CALL US! It takes less than 5 minutes to analyze the numbers and less than 30 days to refinance.
FHA Disclaimer: Cornerstone Mortgage is not acting on behalf of or at the direction of HUD/FHA or the Federal government.