Understanding Financing Terms

What Is An FHA Streamline Loan?

A streamline is a type of FHA loan that's aimed at people who already have mortgages and need to refinance. The FHA streamline process is, as the name suggests, simpler and faster than the normal refinancing process. In exchange for helping homeowners out, though, the government has requirements in place for how people might qualify. Let's take a look at the basics of the streamline system.

Tangible Benefit

The first major requirement is that there has to be a demonstrable and tangible benefit for the borrower. This means that when the new loan is set up that the borrower gets a lower interest rate or a new term for the loan. Banks cannot push the loans just to take advantage of refinancing or to try to float borrowers along. Instead, they have to give you a benefit for refinancing through an FHA loan.

Avoiding Adverse Incentives

In order to prevent incentives for converting other types of loans into FHA ones, there are some restrictions on what types can be refinanced this way. All loans that are refinanced must be existing FHA-insured loans. Unsurprisingly, the borrower also has to be current on the loan prior to refinancing and throughout the refinancing process. In this case, that means you have made payments on time for the last 12 months.

The value of the new loan can't exceed the value of the previous loan. Also, cash in excess of $500 can't be taken out of either the previous mortgage or the refinanced loan during the process. This means there's no way to use refinancing as a way to cash out a significant increase in the value of your home.

No Appraisal

Due to being an existing FHA-insured loan, your new loan won't require a fresh appraisal of the value of the property. With the exception of signing off on some paperwork with your lender, it's unlikely that you'll have to meet in-person at all to make arrangements. A full credit check is also not required.

One thing to keep in mind during this process is that it's wise to reassess your finances anyhow. Take a serious look at your debt-to-income ratio before you get into a new loan.

The value of the property can be reappraised if you're confident that it has gone up, though. This can be beneficial if you wish to use part of the loan to improve the property.