Federal Housing Administration (FHA) mortgage loans are offered by the U.S. Department of Housing and Urban Development to consumers looking to purchase a home with little cash or those who sometimes have credit issues. The program has opened the door to home ownership to many Americans who could not qualify for conventional loans from banks, and these loans offer some of the lowest rates. Just as FHA mortgages make buying a home possible for these consumers, the FHA streamline gives options for refinancing an existing FHA loan with an easy process. The FHA streamline is not, however, a no-cost loan, but simply an easy process with less paperwork. Utilizing the streamline process can quickly drop interest rates and monthly payments for homeowners.
A typical mortgage refinance is much like taking out a mortgage loan for a purchase, involving an application, underwriting, mountains of paperwork and hefty closing costs and lender fees. The FHA streamline loan is somewhat easier and less expensive and often does not require an appraisal. One requirement to use the streamline process is that the existing mortgage be an FHA loan. Conventional loans can be refinanced under FHA loans but do not qualify for the streamline process. The subject property must also be the owner's primary residence, not an investment property or vacation home, and must have been owned for at least six months prior to refinancing. Also, unlike a traditional refinance, in an FHA streamline, no cash from the equity in
the home may be taken out. Finally, the FHA loan to be refinanced must be in good standing and not delinquent.
The first step to processing a streamline refinance is to find an FHA-approved lender; this can be done through a resource such as the U.S. Department of Housing and Urban Development website. Then, determine the closing costs and fees estimated by the lender. These charges can be paid upfront or financed into the loan. If the closing costs are financed, the bank requires an appraisal on the property to ensure proper equity is available to cover the extra amount.
In addition to using an FHA streamline to lower the monthly payment, homeowners may also choose the FHA streamline 203(k) loan to make improvements to their primary residence. There are limitations to the type of improvements and a limit of $35,000 for this type of loan. Additionally, the work must be done by a contractor; timelines exist and work must generally be completed and deemed satisfactory before payment can be made. This makes the FHA streamline 203(k) tricky but beneficial for homeowners of older or neglected homes. Using this type of loan for normal household remodeling can be cumbersome. An experienced 203(k) lender can help determine if this type of loan is suitable and provide guidance throughout the process. Whether the goal of an FHA loan is a lower monthly payment or creating a handicap-accessible home, there is an option available to help.