FHA Streamline Loan Information

When interest rates drop, everybody starts talking about refinancing their mortgage. There is good news for those of you with an FHA Loan. The good news is an FHA Streamline refinance loan. An FHA Streamline Loan is typically much quicker and smoother than other refinance options, but the option is only available for people with an outstanding FHA Loan. The FHA Streamline process is so quick is because the refinance lender simply relies on all of the credit, employment and financial verification information from the original FHA loan application. New credit check, income verification and appraisal are not required.

FHA Loans Generally

To qualify for an FHA Streamline loan, you must have an outstanding FHA Loan. An FHA Loan is a mortgage loan that is guaranteed by the U.S. Department of Housing and Urban Development (HUD). HUD's guarantee of the loan reduces the lender's risk, which means the lender can loan more money at a lower interest rate. Because FHA credit guidelines and down payment requirements are typically less strict than the open market, more people can own their own home.

FHA Streamline Basics

An FHA Streamline is essentially a resubmission of the original FHA Loan application that you provided when you got your outstanding FHA Loan. Lenders allow this streamlined application process because HUD will guarantee the refinance loan just as HUD guaranteed the original FHA Loan. The FHA Streamline application is, for the most part, just your old application repackaged for a new loan.

Is an Application Required?

Technically, yes, an application is still required on an FHA Streamline loan. However, because the application is basically just a repackaged version of your application on your outstanding FHA Loan, the refinance application is a mere formality. You will not have to provide a new appraisal, the lender will not run a new credit check, and you will not be required to provide proof of income. While some lenders will call your employer and verify that you are still employed, the due diligence does not extend beyond that. HUD believes that if you met the qualifications the first time around, there is no reason you should not meet the qualifications this time around.

What Are the Requirements for an FHA Streamline?

Be current on your outstanding mortgage loan. That is the only real requirement. If you have not made any late payments in the last year, you should have no trouble qualifying for an FHA Streamline.

What Are the Disadvantages of an FHA Streamline?

The only real disadvantage of an FHA Streamline is that you cannot pull any cash out when you refinance. In a standard refinance application and loan, it is possible to walk away from the loan closing with cash. The cash is basically paid out of the equity in your home. HUD does not permit cash withdrawals in an FHA Streamline application. Additionally, you can be approved for an FHA Streamline loan only if it will result in lower monthly payments. That shouldn't be a problem, though, because why would you refinance if you weren't lowering your monthly payments?