Refinancing made (relatively) easy with FHA Streamline

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Are you distraught because you’re underwater on your mortgage and you think you can’t refinance at a lower interest rate?

If you have a Federal Housing Administration mortgage, think again.

A special program called FHA Streamline ignores current property values when determining borrowers’ refinance eligibility.

To qualify for an FHA Streamline refinance, you must be current on your existing mortgage payments. The new loan amount cannot be higher than your original loan amount, and the refinance must lower your monthly principal and interest payments by at least 5% or get you out of an adjustable-rate mortgage and into a fixed-rate mortgage.

Here’s what to expect from the program.

Finding a lender

Your current lender is a logical place to start looking for a Streamline refinance.

To increase your chances of getting a person on the phone who can actually help you, don’t call the refinancing phone number on the lender’s website. Call a local branch for assistance.

If you want to look beyond your current lender, be aware that not all lenders offer FHA Streamline refinancing.

Local real estate agents, such as the one who sold you your house, are often a valuable source of information about which local lenders are honest and easy to work with and which might participate in the Streamline program.

Documentation and underwriting

Though an FHA Streamline loan is supposed to have reduced documentation and underwriting requirements, don’t be surprised if your lender requests much of the same mortgage paperwork that you had to submit when you purchased your home.

You might have to provide your last two years’ worth of tax returns, three months’ worth of recent bank statements, and income and employment verification. The lender also will pull your credit reports and scores. In today’s strict lending environment, even “easy” loans can be difficult.

Closing costs

The FHA Streamline program is intended to simplify the refinancing process, but it does not eliminate the standard costs associated with refinancing.

Borrowers still will have to pay closing costs such as origination fees, title fees and documentation fees.

Perhaps the most significant closing cost is the up-front mortgage insurance premium, currently 1% of the mortgage principal amount, which can be rolled into your mortgage. That means that you pay a $1,000 insurance premium on every $100,000.

If you already paid this within the last five years, a prorated amount of the premium will be credited toward your new premium.

You’ll also continue to pay the FHA’s monthly mortgage insurance payments after you refinance, though the amount will change with your new loan.

One closing cost you won’t have to pay is an appraisal fee, since the FHA does not require a new appraisal for a Streamline refinance.

But a refinance is not automatically a good deal just because it is part of the Streamline program -- even though mortgage rates are competitive.

You will need to determine when the lower monthly mortgage payments will offset the up-front costs of an FHA Streamline refinance just as you would on any other type of refinance to determine if this makes sense for you.

Our refinance interest savings calculator can help.

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