Does Your Credit Score Effect FHA Streamline Refinancing?
The Federal Housing Administration (FHA) does not impose any special guidelines pertaining to credit scores on streamlined refinances. However, anyone wishing to take out a streamline refinance loan must have a credit score of 580 or higher, because the FHA does not insure any loans for borrowers with scores below 580.
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Credit Scores
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When you apply for a mortgage, the lender pulls your credit report from the three national credit bureaus: Equifax, Experian and TransUnion. If all the credit scores reported by the bureaus are different, lenders disregard the highest and lowest score and use the middle score to underwrite your application. Sometimes the credit bureaus do not have sufficient data to provide credit scores for all applicants. If only two scores are provided, lenders use the lowest of the two. If only one score exists, lenders use that score.
Lenders Determine Acceptable Credit Scores
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The FHA insures loans, but it does not actually write loans. Lenders cannot obtain FHA insurance on a loan written for a borrower with a credit score below 580, but lenders do not necessarily have to write loans for all applicants with scores of 580 or above. Many mortgage companies require all borrowers to have credit scores in excess of 620, or sometimes 640. Rules vary from lender to lender, but people with low credit scores often have to shop around to find an FHA partner lender willing to finance them.
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Streamline Refinances
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The FHA defines streamline mortgages as refinance loans that result in a borrower paying a lower interest rate or moving from a variable-rate loan into a fixed-rate product. Borrowers can only use FHA streamline loans to refinance existing FHA-backed loans, and streamline refinances are only available to borrowers who are current on their existing mortgage payments. As with all FHA-insured loans, the FHA periodically modifies the requirements for streamline loans.
Lenders
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Many lenders allow borrowers to use the appraisal prepared for the existing FHA-backed loan to determine the property value for a streamline refinance loan. This provision makes it easier for people whose homes have lost value to refinance. Other lenders offer streamline loans with no out-of-pocket closing costs, although this usually results in a higher rate. The terms available with streamline loans vary from lender to lender, but, in general, streamline loans are low-cost and take less time to close than regular refinance loans.
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References
- U.S. Department of Housing and Urban Development: Streamline Your FHA Mortgage
- Bankrate: "Should We Do an FHA Streamline Refinance?"; Don Taylor; 2003
- U.S. Department of Housing and Urban Development: Streamlined 203(k) Limited Repair Program
- U.S. Department of Housing and Urban Development: Refinances
