Streamline Refinance Mortgage Loans
What is a Streamline Refinance?
A streamline refinance is a special type of refinance that requires less documentation, but must adhere to strict rules. FHA, VA & USDA programs all offer a streamline option with varying benefits.
Lower Your Monthly Payment
FHA Streamlines are a fast way to lower your monthly mortgage payment. The FHA has strict guidelines regarding how you achieve the lower payment. For example, you can’t add more than 12 years to your loan term. If you do extend your loan term to lower your payment, you must also reduce your interest rate. The exception is if you’re going from an adjustable-rate mortgage to a fixed-rate mortgage. It all comes back to achieving the net tangible benefit required for an FHA Streamline.
Refinance if You Owe More than Your Home is Worth
Unlike many mortgage refinance options, an FHA Streamline allows you to refinance even if you have an underwater mortgage, or you owe more on your home than it’s worth.
The loan amount for your FHA Streamline is primarily determined by the outstanding principal balance of your loan – so if your home value has declined, you may still be able to use an FHA Streamline to refinance.
There are two types of Streamline refinances. The first is credit qualifying, where you provide income documentation and the lender performs a credit check. If your refinance happens to remove a borrower from the mortgage, you fall into this type of Streamline refinance.
The second is non-credit qualifying. With this type of refinancing, your lender still checks your credit, but there are fewer factors your lender considers within your credit report. For a non-credit qualifying refinance, your lender may not need to verify your income. This makes for a faster, easier approval process.
No Appraisal Required
Generally, FHA Streamlines do not require an appraisal because the amount of your loan is determined by what you currently owe- not your home's value.
VA Interest Rate Reduction Refinance Loan (IRRRL)
Lower Your Interest Rate
The most common reason why veterans and their family members refinance their VA loans is that they need a lower interest rate. When it comes to how refinancing works with a VA Streamline, your monthly payments often decrease. Lower monthly payments may result from an extended term on the loan, which allows more time to pay on your mortgage. A lower interest rate could also result in a lower monthly payment if the length of the loan is held equal.
Restructure from Adjustable Rate to Fixed Rate
Refinancing with a VA Streamline could allow you to move from an adjustable-rate mortgage to a fixed-rate loan. ARMs change over time, depending on rate fluctuations. Fixed-rate mortgages lock in a single interest rate until you pay off your mortgage.
Reduced Funding Fee
Instead of mortgage insurance, VA loans have a funding fee that can either be paid at closing, offset with a lender-paid credit, or added to the loan balance. The amount of the funding fee on a regular VA loan is anywhere between 1.4 – 3.6% of the loan amount depending on service status. For a VA Streamline, the funding fee is 0.5% of the loan amount in all circumstances.
No Appraisal Required
VA Streamlines do not require an appraisal in most cases, but that will be determined depending on your specific circumstances.
One thing that separates USDA Streamlines from similar offerings from other loan types is that there are actually two different options. Let’s run through the eligibility requirements for a USDA Streamline-Assist refinance before taking a look at the similarities and differences at a house with a USDA Standard Streamline.
USDA Streamline-Assist Refinance
- The home has to be your primary residence – where you live for the majority of the year.
- Your current mortgage has to be either a USDA Direct Home Loan or a USDA Guaranteed Home Loan.
- Your existing home loan must be at least 12 months old before you can receive conditional approval on your new loan.
- You have to have at least made 12 consecutive payments on your existing USDA loan.
- Your monthly mortgage payment – including principal, interest, taxes and insurance – has to be a minimum of $50 lower after the refinance than it was before.
As part of the Streamline-Assist option, no credit check is required and no special ratios are calculated, so it can be easier to qualify. Income isn’t a factor. Additionally, no appraisal or inspection is necessary if you haven’t received a subsidy. Finally, things like escrow fees and other closing costs can be included in the loan to create a no-closing cost refinancing.
USDA Standard Streamline
A standard USDA Streamline is a bit harder to qualify for than a Streamline-Assist refinance, but it still may be a good option. Let’s go over the qualifications:
- The home has to be your primary residence.
- Your existing home loan has to be either directly from or guaranteed by the USDA.
- Your existing home loan has to be at least a year old before you can get a conditional approval on your Streamline.
- You have to prove your income and with a USDA-qualifying debt-to-income (DTI) ratio.
- Standard credit guidelines apply.
- You have to have made on-time payments for the last 6 months.
Other than credit and income guidelines being more strict, many of the other features of the Streamline-Assist are carried over. For example, there’s usually no home appraisal or inspection is required. Closing costs can still be built into the loan.