Did you know you had a choice when refinancing an existing FHA loan? You do. You can refinance the traditional way or you can choose the “streamline” option. Which one is right for you? Your loan officer can review your situation to help guide you through the process and choose the right program. Refinancing an existing FHA mortgage is in fact getting a brand new mortgage, you’re not modifying the existing loan. That also means you don’t have to use the same lender when refinancing an FHA loan. But the FHA program has refinancing options that other loans don’t have.
The streamline is so-called due to the easy of qualifying and much less documentation required. With the streamline, there is no appraisal required. This means even if you owe more than what your home is worth you can still refinance to get a lower rate or switch from a variable rate to a fixed. With a streamline, there is no employment verification, either. Your lender doesn’t need to contact your employer to verify employment nor do you need to present W2 forms, income tax returns or even pay check stubs. With a streamline, you won’t have to present any bank account information because asset verification isn’t needed nor are there any minimum credit scores required.
The streamline can be used when there is what lenders refer to as a “net tangible benefit” which is merely lender lingo that means “does it make sense.” If you’re reducing your monthly payment or you’re switching from the uncertainty of a variable rate loan into the stability of a fixed, then it makes sense and you’re streamline eligible.
However, you may not be streamline eligible and only the traditional method is available. For example, you can’t pull out any additional cash with a streamline so a cash-out refinance can only be accomplished with a traditional FHA refinance. Further, if you want to roll your closing costs into your loan amount, you can’t do that with the streamline method, just with the traditional option. Your loan officer can provide options on how to address these closing costs either out of pocket or with a lender credit. The streamline is the preferred option due its low documentation requirements but if a streamline can’t work, the traditional method is always available.
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