If you bought your home with an FHA loan, you may be able to refinance without verifying your qualifying information all over again. The FHA streamline refinance makes it easy for FHA borrowers to refinance.
The key is, though, you have to wait at least 210 days and make six payments on your FHA loan before you can apply for the FHA streamline refinance.
What is the FHA Streamline Refinance?
The FHA streamline is an opportunity for you to refinance your FHA loan to get a lower rate and/or to change the term of the loan. It’s not an opportunity to take cash out of your home’s equity. You may only refinance the outstanding principal balance on your current loan, plus any necessary fees.
There are only two requirements you must meet for the FHA streamline refinance. First, you must have on-time mortgage payments. Since the FHA allows you to refinance after just six payments, all six payments must be on time. If you have made at least 12 payments, the FHA does allow one 30-day late payment in that time.
You must also have proof that you benefit from the refinance. In other words, the FHA doesn’t want you refinancing if there isn’t a benefit. This is meant to protect you. Refinancing costs money, typically thousands of dollars, if you don’t benefit from it, there’s no reason to spend that money.
The typical net tangible benefits include:
- Lower interest rate
- Better mortgage term
- Fixed rate loan instead of an ARM loan
There aren’t any requirements regarding what the benefit must me – you just must benefit in some way.
Watch Out For Lender Overlays
Now the requirements we spoke about are the FHA guidelines. The FHA doesn’t underwrite or fund your FHA loan, though. The lenders do both of these tasks, which means the lender has the final say in whether you qualify for the loan.
Lenders can add stricter guidelines to make the loan less risky for them. The most common overlays include:
- Proof of your credit score – The FHA doesn’t require lenders to pull your credit for the streamline refinance. Instead, they can use your qualifications from the purchase loan. Some lenders still pull your credit to make sure you aren’t in financial trouble.
- Prove your employment/income – The FHA doesn’t require lenders to check your income or employment. This means you could have changed jobs and still refinance without any verification. Some lenders don’t like this and require you to prove your employment and/or income.
- Calculate your debt ratio – The FHA doesn’t require lenders to determine your debt ratio. They assume if you could make your original mortgage payments on time that you’d be able to make the lower payments on time too. Some lenders want to know what your debt ratio is, though, just to reduce the risk of default.
Should You Refinance FHA Loan After Just Six Months?
A question you may want to ask yourself is if you should refinance after just six months. As we stated above, refinancing costs money. Do you want to pay those closing costs all over again? Whether or not it makes sense to do so depends on your plans.
Are you going to live in the home for a long time? If you think you might move in the next few years, it probably doesn’t make sense to pay for a lower interest rate or different term. You are only going to have the loan for a short period. You won’t be there long enough to realize the benefits of refinancing.
If, on the other hand, you know you will stay in the home for the long-term, it may be a good move. If you have the chance to significantly lower your interest rate or change your term for the better, it could be a good financial move.
Look at the bottom line to see how much the refinance will cost and what you will save. Will you be in the home long enough to realize the savings? If you will, refinancing after just six months may be worth it. If you won’t or you aren’t sure, you may want to wait until you have more concrete plans.