FHA Streamline Refinance – What’s the Catch?
I know that sometimes FHA home loans get a bad rap because of the mortgage insurance premium, but there are benefits that go far beyond that of simply being easier to qualify.
FHA home loans have a built in benefit of allowing you to reduce the interest without having to go through the expense and paperwork of the entire home loan process again.
I know, I know…I’m usually the first one to call B.S. when something sounds too good to be true – so I want to make sure I emphasize that it is a much easier process, but of course there is still a little bit of paperwork.
What’s the Catch?
That’s just it – there really isn’t one. There are a couple of things you should be aware of though.
No Cost Streamline – There are minimal costs to doing a FHA streamline refinance that the lender will pay for. The way the lender pays for these fees is by offering you an interest rate sufficient to “cover the cost”.
Example: If you currently have a 4% interest rate, a lender may be able to offer you a “no cost streamline” at 3.25%. That’s pretty good right? Should save you a ton over the long haul.
The reality of this scenario is that if you were to come in with the reduced fees associated with a streamline, you may be able to push that interest rate down under 4%. Pretty cool huh?
Paperwork Required for a FHA Streamline Refinance
- Loan Application – This is the same application you completed last time you applied for a loan
- Mortgage payment coupon/statement – Your most recent mortgage statement
- Homeowner’s insurance declaration page or agent’s contact information
- Copy of Driver’s and Social Security card
That’s not bad, right? Most importantly is what you DO NOT have with a FHA streamline refinance…..No Appraisal!
I am sure there are many lenders out there bombarding you with refinancing opportunities, it’s annoying – I totally get that. Just don’t let that discourage you from looking into this option if you have a lender you can trust.
If you’re in California, I’m happy to run the numbers to see if you can save a few bucks. If you’re outside California, drop me a quick comment below and I may be able to recommend someone I trust.
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The bottom line on this is that there’s no cost to explore this opportunity and if you cannot realize at least a 5% improvement in payment, FHA will not allow you to refinance. Win/Win.
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Have Questions or Comments?
Hi Scott, I had a modification back in 2014 which the Bandit of America (my nickname for the bank) really screwed up. After many harassments from them for turning down what looked like shoddy modifications a couple of times, I signed something I later realized was misrepresented to me. As I began to dig deeper, I realized they actually put my mortgage in a worse position and more debt than I actually bought the house for. Now, I want to refinance my FHA mortgage and there is a $50k lien placed on my house. A few years back I asked the bank to review their paper work because the numbers did not add up but they refused. I was even told I was lucky they even completed the modification for me. If I send you my documents, can you tell if and how they have pulled a fast one on me? And if I can still do something about it?
Hi there, I can definitely take a look at it for you. Can you send me your documents, including a current mortgage statement to scott@findmywayhome.com
One more question, was there a bankruptcy at any time during your hardship?
My daughter has an FHA loan balance of $186,000 at 4%. She also has a HUD Partial Claim Mortgage in the amount of $30K signed in November 2019 to get herself current. Can she refinance the primary mortgage and have the Partial Claim remain in second lien position (hence remain not payable until 2047 or when the home is sold, whichever comes first)? I have read conflicting answers on whether or not you can refinance the primary without having to pay back the partial claim at that time of refinance. thanks…
Hi Tina, this is a really good question. I am unable to find anything in the FHA underwriting manual that suggests that subordination of the Partial Claim would be allowed.
If you have the original paperwork for the Partial Claim, it likely states that the claim must be paid if you sell or refinance the mortgage.
I would start by asking your current mortgage servicer if this is something they can do. If you take the loan to a new lender, I can almost guarantee it would need to be paid.
The current servicer may be in a position to have more flexibility.
I hope this helps?
Hi I have 4.75 intrest rate and I was wondering if it’s possible for me to do a cashout refi and lower my interest rate at the same time?
Hi Arden, this is a really good question. An FHA streamline does not allow for cash-out, however, you can do a standard cash-out refinance and you should most certainly be able to lower that interest rate by a minimum of 1%.
If you would like, I can introduce you to a mortgage expert that I know and trust that can run the numbers and show you what this looks like?
If you’re interested, shoot me an email to scott@findmywayhome.com and let me know what State you’re in.
I hope this helps?