Specifics aside, a closer look at streamline refinance programs offered for FHA and conventional loans reveals that they are not too far apart. Notably, the conventional streamline refinance programs will officially take the place of the Home Affordable Refinance Program® in October. Take a look at how these streamline refinance programs fare and compare with each other.
FHA and Conventional Streamline Refinance
The FHA Streamline Refinance and the Conventional Streamline Refinance, Fannie Mae’s High Loan-to-Value Refinance Option and Freddie Mac’s Enhanced Relief Refinance℠ hinge on a faster and more streamlined approach to refinancing with less paperwork.
Each of the streamline refinancing programs:
- Does not have a minimum credit score.
- Does not have a maximum debt-to-income ratio.
- Does not have a maximum loan-to-value ratio.
- Does not have an appraisal, in general.
Furthermore, the FHA does not require a check on credit and income/capacity.
For you to be eligible for a refinance, there must be a showing that the refi will benefit you.
In the case of FHA Streamline Refinance, there must be a net tangible benefit through a 20% reduction in your new monthly payment. If there’s no reduction in payment, a showing of less risk is possible such as switching to a more stable mortgage product or shortening one’s loan term.
Similarly, conventional streamline refi standards require you to show a benefit from the refi by having a lower rate, lower monthly principal + interest payments, a more stable mortgage, and a shorter loan term.
To do an FHA streamlined refinance, you must be current on your FHA loan having made six monthly mortgage payments prior to the refinance. If you have previously refinanced, you have to wait 210 days from your loan’s closing date to do a streamline refinance.
The mortgage must also be current to be qualified for a Fannie Mae or Freddie Mac streamlined refinance, requiring that 12 monthly payments have been made before the refi. There should be no 30-day delinquency within the six-month period and no more than one 30-day late payment during the past 12 months.
Why an FHA or Conventional Streamline Refinance?
FHA homeowners can save money and time when they do streamline refinancing; getting a lower rate and monthly payment at the same time. For those whose homes’ value has fallen below their loans’ unpaid balance, an FHA streamline refinance is a good opportunity to remain current on their mortgages.
Indeed, having an underwater mortgage or switching a job recently could make you unable to refinance.
Unlike their predecessor, HARP®, conventional streamline refi programs now don’t have an eligibility cutoff date. The LTV ratio is also based on the number of units a home has.
Do note that you are not eligible for any of the conventional streamline refinance if you currently have a HARP loan. But if you did refinance out of it using refi programs allowed by Fannie or Freddie, you may qualify for the new conventional streamline refi programs.
So, have you made a choice? Do you want to go things over with your lender?
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.