Article Excerpt
FHA Streamline refinancing helps homeowners save money. Which pros and cons should you know about? How about closing costs? Requirements? Read on!
What is an FHA Streamline refinance?
Here’s the simple answer: an FHA Streamline refinance is a loan that replaces your already-existing FHA mortgage. It will replace your interest rate with a new rate. The goal is to refinance into a lower rate so you can save on interest.
Download Freddie Mac’s up-to-date interest rate spreadsheet to see where average rates are sitting for this week.
An FHA Streamline refinance is the easiest way to pay less interest if you already have an FHA mortgage. FHA Streamlines are only available to those with an existing FHA mortgage.
FHA Streamline Refinance Requirements
Why is it called a “Streamline” refinance? Because it’s a lot easier than a regular loan. They’re considered “non-qualifying.” That means you won’t need to gather pay stubs, tax returns, W2’s, or any other kind of income verification like you were required to when you first got the mortgage. There’s also no appraisal required.
A down payment won’t be needed since your loan amount isn’t changing. You’re simply refinancing into a lower interest rate. It’s really that easy.
The FHA doesn’t verify credit scores for FHA Streamline refinance loans. But your lender may set a minimum score. Depending on your lender, your credit score may need to be at 620 or higher. They won’t have to pull a hard inquiry, which can cause your score to take a temporary dip.
FHA Streamline Refinance Closing Costs
FHA Streamline refinances do have closing costs. While some other programs can roll closing costs into the loan (whereby you’d pay them a little at a time each month), the FHA program doesn’t allow it.
You’ll generally expect closing costs between 2 to 5% of the mortgage amount.
FHA Streamline Refinance Pros & Cons
Pros
- You can save a significant amount of money each month by reducing your current interest rate.
- You won’t need to go through the hassle of providing income verification documents to your lender.
- Most lenders can close in as fast as two weeks.
Cons
- Your lender’s minimum credit score requirement may be higher than the 580 minimum you originally qualified with for the FHA program.
- You won’t be able to cancel your mortgage insurance premium (MIP) by using an FHA Streamline refinance. In order to cancel MIP, you’d need to refinance into a different loan program, which may carry different qualification requirements.
Potential Savings Example
How much can an FHA Streamline refinance save on interest? It may be much more than you think. Check out this example.
The current situation
Let’s say you took a $300,000 loan in January 2014 with a 4.5% interest rate on a 30-year mortgage. Your current payments would be at $1,520.
The new loan
Technically, refinancing your loan is actually replacing it with a new one. The new loan will also be a 30-year term, but you’re dropping down to December 2020’s rates, which average a record-breaking 2.9%.
Let’s assume $3,000 for the closing costs - (you’ll need to speak to a lender in order to get an exact quote).
New monthly savings
Your new monthly payment would only be $1,086. That’s a $434 difference every month! What could you use that extra money for? Paying off credit cards, student loans, or maybe just taking a mini weekend vacation every month.
Total interest savings
Here’s the really fun part: your net interest savings over the whole life of the loan will be $22,327 - that includes subtracting your closing costs! The break-even point for the start of savings would take fourteen months.
The bottom line: is an FHA Streamline refinance a good idea?
- Will refinancing into a new interest rate help you save money before you sell the home?
- Can you pay the closing costs?
If you can answer “yes” to both of these questions, it’s a no-brainer. The requirements are set low and it’s a fast and easy process. You can only come out ahead if your situation is anywhere close to the example in the previous section.
Ready to see how much you can save with an FHA Streamline refinance? Our mortgage advisers are on standby all across Texas. Check out what our clients are saying. Get started now by answering just a few simple questions online, and we’ll be in touch soon!
