Streamline refinance offers a simplified alternative route to the tedious path that is oftentimes traditional refinancing. By a streamlined process, homeowners hopefully will be able to cut back on time and money in preparing themselves and their homes for a refinance. There are a myriad streamline refinance programs out there but it’s the government-backed streamline refinance programs that remain a viable option for U.S. homeowners. »Looking for a lender to refinance?»
What Makes Streamline Refinance “Streamlined”?
In general, a streamline refinance requires limited verification, be it credit, assets or income. If there are requirements such as credit scores or debt-to-income ratios, they are minimal. Streamline refinance transactions generally do away with new home appraisals, thus lowering closing costs. The limited or minimal requirements make for less paperwork and thus faster processing.
And streamline refinance options offered by FHA, VA, USDA, and to some extent, HARP® require a net tangible benefit.
FHA Streamline Refinance
If you want to lower your mortgage rate, lower your mortgage insurance rate or pay it off faster, the Federal Housing Administration’s Streamline Refinance might be the right option for you.
- Mortgage: Available to FHA-insured purchase loans that closed before June 1, 2009. There is a 210-day waiting period since the original loan closing date before a borrower can refinance.
- Property: Eligible properties are primary, secondary and investment homes.
- Appraisal: No appraisal is required. The FHA allows the use of the home’s original purchase price or its most recent valuation as basis for the refinance loan.
- Mortgage Insurance: A one-time upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP) payable in 12 monthly installments.
- Closing costs: The FHA does not allow closing costs to be rolled into the new loan so they have to be paid upfront at closing. However, if you go for a new home appraisal, you may finance your closing costs together with your loan, provided that your new loan exceeds your old loan by at least 1.5%.
»Locking in today’s refinance rates?»
- Credit Score: At least 620, 640 or 680 as it varies. But, the FHA does not consider the credit score as a determining factor, relying more on the mortgage payment history of the borrower.
- Payment history: Borrowers must possess a perfect three-month payment history, with one late payment allowed within a 12-month period. And the borrower must have made six on-time and in-full payments on the loan.
- Income: No income or asset verification for as long as the borrower meets all other requirements.
- Net tangible benefit: Borrowers must demonstrate that the refinance will lower the costs of keeping the loan, either resulting in a 5% or more reduction in monthly payments or insurance costs, or by switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM).
- Cash-out: A cash-out is not considered a net tangible benefit so it is not allowed.
VA Streamline Refinance (IRRRL)
Also known as the Interest Rate Reduction Refinance Loan, the U.S. Department of Veterans Affairs’ Streamline Refinance is for its borrowers to lower their existing rates. And borrowers may change lenders, provided that they are VA-approved.
»Lack equity in your home, what are your refinance options?»
- Mortgage: Open to existing VA home loans.
- Property: Eligible for primary, secondary and investment homes. Applicants must be able to certify that they’ve been occupying or have occupied the property within the last six months.
- Appraisal: No appraisal is required.
- Mortgage Insurance: No mortgage insurance is required.
- Closing costs: VA allows borrowers to roll their closing costs into the refinance loan.
- Credit Score: Credit checks are not required.
- Payment History: Borrowers must be current on their loans, with just one late payment, which is less than 30 days, allowed within 12 months.
- Income: Income and assets not checked or requirement waived.
- Net tangible benefit: The refinance must result in lower monthly payments than on the current loan. This condition does not apply if the refinance results in switching from an ARM to an FRM.
- Cash-out: Borrowers are allowed to take cash out for purposes of making their property more energy efficient, subject to payments being made 90 days after the work is completed.
USDA Streamlined Refinance
The U.S. Department of Agriculture, through its Rural Housing Service, allows borrowers of its guaranteed and direct loans to reduce their interest rates through its Streamlined Refinance Program. The USDA also offers Streamlined Assist Refinance Program. Outlined are the qualities shared by both programs with differing features as indicated.
»Lenders to help you refinance are accessible here.»
- Mortgage: Available to existing 502 Direct and Guaranteed Loans.
- Property: Applicable to primary residences. Homes that are no longer in eligible rural areas can still qualify.
- Appraisal: Generally not required except for borrowers of direct loans who received subsidy during the loan term. Direct loan borrowers with owed subsidy recapture may subordinate this amount if they are unable to pay it in full.
- Mortgage Insurance: Not required.
- Closing costs: The streamlined refinance option can’t exceed the original loan amount consisting of principal and interest, re-conveyance fee and upfront guarantee fee. But the streamlined assist refinance program allows closing costs to be included in the loan amount.
- Credit Score: Chapter 10 credit requirements will apply under the streamlined refinance option. The streamlined assist refinance program focuses on payment history.
- Payment History: The streamlined refinance program requires loans to be current 180 days before submitting a refinance request while the streamlined assist refinance program asks 12 months of on-time and in full payments before refinance.
- Income: Meet the adjusted annual income limit applicable to where the property is located.
- Net tangible benefit: The streamlined refinance option does not require a net tangible benefit. But under the streamlined assist refinance program, there must be a reduction of the mortgage’s PITI (principal, interest, taxes, and insurance payments) by at least $50.
- Cash-out: USDA does not allow cash-out transactions.
»Learn about streamline refinance here.»
HARP® Streamline Refinance
The Home Affordable Refinance Program®, as extended, helps homeowners with conventional loans refinance into more stable or more affordable loan products. HARP® also allows borrowers with underwater mortgages to refinance, having no maximum loan-to-value ratio limit.
- Mortgage: Applicable to mortgages owned or backed by Fannie Mae and Freddie Mac, being sold to either entities on or before 31 May 2009.
- Property: Eligible for primary, secondary and investment residences.
- Appraisal: An appraisal is not required when there is a reliable automated valuation model (AVM) estimate.
- Mortgage Insurance: If your old loan has a private mortgage insurance, then your new loan will need one with the same insurance coverage amount. If the old loan does not have a PMI, there’s no need for it to refinance.
- Closing costs: Closing fees can be rolled into the loan, provided that the loan amount does not exceed the applicable conforming loan limits.
- Credit Score: 620 or higher, as it varies.
- Payment History: Borrowers must be current with a perfect six-month history and only one late payment within a 12-month period is allowed.
- Income: No income limits, subject to verification.
- Net tangible benefit: Benefit to the borrower means the realization of significant savings by shortening loan terms, switching to an FRM, and lowering monthly payments.
- Cash-out: HARP® does not allow cash-out for debt consolidation.
Many streamline refinance programs await today’s homeowners. To know which option is suitable for you, get in touch with a lender. »Let our reliable lenders help you with your refinance prospects.»
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.