How to Refinance With No Closing Costs Using a Streamline Mortgage

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The Federal Housing Administration (FHA) is an agency of the U.S. Department of Housing and Urban Development (HUD). The FHA offers a streamline refinance program for homeowners wishing to refinance their FHA mortgage loans to another FHA loan with lower monthly payments. Streamline refinance mortgages require less paperwork than traditional refinancing, and they provide options for homeowners wishing to refinance without paying out-of-pocket closing costs.

Things You'll Need

  • a home you live in
  • a mortgage
  • a job

Eligibility for FHA Streamline Refinancing

  • Determine your eligibility for streamline refinancing. Your existing mortgage loan must be insured by FHA, and your loan payments must be current. You may not refinance with additional cash out using an FHA refinance. The new FHA refinance mortgage must have lower monthly payments than your original FHA mortgage. Varying factors, including your home's current value, the amount owed on your current mortgage, and your employment and financial status can impact your ability to qualify for refinancing. Contact your mortgage company or approved FHA lenders in your area to learn more about streamline refinancing requirements.

  • Contact a real estate agent or broker specializing in your neighborhood to learn how much your home is worth. Subtract the balance of your existing mortgage loan from your home's current value. If your home is worth $100,000 and you owe $90,000 on your FHA mortgage, you have a 90 percent loan-to-value ratio. FHA allows up to 97.5 percent loan-to-value ratio, so this situation would qualify for a streamline refinance provided your income, employment and credit meet FHA guidelines. Refinancing requires replacing your existing mortgage loan with a new mortgage and paying closing costs; FHA provides two ways to complete streamline refinancing without paying out of pocket for costs.

  • Advise the FHA lender handling your refinance that you don't want to pay closing costs up front. Provided you have enough home equity, you can have closing costs rolled into the new mortgage amount, or you can also elect to pay a higher interest rate on the refinance mortgage and the lender will pay the closing costs. The higher interest rate reimburses the lender for its advance over time. Lower mortgage rates can make this an affordable option for homeowners short of cash. FHA notes that these options do not eliminate closing costs or finance charges associated with using either option, but provide homeowners with flexible options for paying closing costs on a streamline refinance.

  • Request and compare mortgage quotes for different methods of paying closing costs, and also compare quotes from multiple FHA approved lenders; this assists with finding your best deal on a streamline refinance without having to pay closing costs out-of-pocket. Streamline refinancing provides FHA mortgage borrowers an opportunity for lowering monthly payments and mortgage rates; however, choosing to roll the closing costs into your loan balance, or having your lender advance closing costs and charge a higher mortgage rate can reduce the savings associated with your streamline refinance. Ask for the annual percentage rate (APR) on each mortgage quote. The APR more accurately measures the cost of a mortgage loan than comparing interest rates alone.

Tips & Warnings

  • Streamline refinance program eligibility and qualifying for a streamline refinance are two different processes. Qualifying for a mortgage loan requires borrowers to meet lenders' credit criteria and the home being refinanced to meet lender requirements.
  • FHA does not make mortgage loans. It insures lenders against losses on mortgage loans. Lender credit requirements may differ from FHA minimum underwriting requirements.

References

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