800-555-2098
As a follow up to an earlier article I wrote on FHA Loans, I wanted to continue to explain the advantages FHA mortgage holders have when they refinance their current mortgage. As discussed previously, the government provides a loan called the “Streamline Refinance” dedicated to those borrowers whom have a FHA loan. This loan provides an easy and convenient way for FHA borrower’s to take advantage of the low interest rates available to them at little to no cost.
One large complaint that people have when they are refinancing or purchasing a home in general, is all the endless paperwork the bank needs to complete their loan. This can frustrate many people to the point of giving up on their refinance attempt or ultimately can discourage them from choosing to refinance in the future even though they could lower their interest rate and save hundred’s of dollars a month. Streamline Refinance loans however cut this paperwork down drastically. These loans tend to have fewer forms to sign and do not require any income documentation at all. This can make the refinance process much easier to complete and less frustrating in the long run.
Another huge benefit with this Streamline Mortgage program is that no appraisal is required. This is huge for homeowners who think the value of their home has gone down. Imagine if you were in the middle of refinancing your home and then your appraisal came in too low. This low appraised value could be grounds to deny your loan and stop you from saving hundreds of dollars per month. Again, this “Streamline Refinance” does not require an appraisal so if you believe the value of your home has dropped you can still easily refinance your home with this program. No appraisal also means that you will have to pay the cost associated with an appraisal. This can save you $325-$500 just by utilizing this Streamline Mortgage option.
Fha Streamlines Mortgages also may have an option for no closing costs. Because there is no appraisal you may be able to reduce your interest rate with no out of pocket costs whatsoever. Many borrowers are able to have their rates reduced with no closings costs which then lower their monthly payments significantly. For example, if a borrower owes $100,000 on their mortgage at a 6% rate (which is currenlty considered a higher then normal rate), they may be able to keep their loan balance the same and still drop their interest rate down to 4.5% (based on today’s mortgage rates).
Downsides to FHA streamline Mortgages
An FHA streamline may not be the best option for all borrowers. If you believe you have 20% equity in your mortgage then a Conventional loan may be the best for your situation. This would allow you to get rid of the PMI or Mortgage Insurance that all FHA loans have.
The other downside to doing a streamline refinance on your FHA loan is that you will restart your term. If you have a 30 year fixed mortgage and are 2 years into your loan then you have 28 years remaining. Although you may save you on your monthly mortgage payment, refinancing will start your loan term over again at 30 years. We recommend these concerned borrowers use the savings they get by refinancing and then apply it to toward their new monthly payment. That way you can effectively pay your loan off much earlier then the new 30 year term. For example, if you currently owe $100,000 on your mortgage, refinanced your loan to 4.5%, saved $50 per month and then applied that $50 savings toward your new monthly payment, you would pay your loan in 25 years instead of the 30 years. My guess is that any concerned borrower would find this research this fact very appealing.
How can Mortgage Lenders refinance my mortgage with no closing costs?
With the rates being so low, lenders have the flexibility to credit money back to the borrowers and still make a reasonable amount off originating the loan. For example, if a lender can sell your mortgage and will make $2,000 off your loan, they can still credit $1,000 toward back to you to cover all of your closing costs and they still make $1,000. It is a win win situation for everyone involved.
What are the benefits of Streamline Refinance loans?
The streamline refinance mortgage is one of the best mortgage programs available. This programs is only available to people who currently have a FHA loan and have paid their payments on time for the previous 12 months. If they got the loan less than 12 months ago, they may do a streamline refinance with a minimum of 6 mortgage payments made on time. The streamline refinance is one of the only mortgages that allow you to refinance your mortgage with no application fees, no appraisal and no closing costs. In addition to these benefits, it is called a Streamline Refinance because the process is streamlined with little documentation. In most circumstances, borrower’s won’t even need to provide income documentation. For more information, visit our FHA Streamline Refinance page.