If you financed your home with a Federal Housing Administration-backed mortgage, you may be able to cut your expenses by refinancing with an FHA streamline loan. These loans are available through banks and mortgage firms, and the FHA insures the loan to protect the lender in the event you default on the mortgage. The benefits of a streamline refinance include the interest rate, low fees and expedited processing.
Like any insurer, the FHA charges premiums to cover its liabilities. As a homeowner, you pay these premiums in the form of an upfront payment and recurring monthly fees. As of June 2012, a standard FHA refinance loan upfront premium is 1.75 percent of the loan amount. The monthly fees amount to 1.25 percent of the outstanding balance on an annual basis. The FHA altered the pricing only for streamline refinance loans used to replace FHA loans issued before March 31, 2009. You now have to pay only a 0.01 percent upfront premium and annual premiums that are equal to 0.55 percent of the loan amount. This means you could save several thousand dollars with a streamline refinance versus a standard FHA loan.
No New Appraisal
On a standard FHA or conventional refinance loan, your lender orders an appraisal to ensure that your home's value exceeds the loan amount. With a streamline refinance mortgage, the lender uses the same appraisal that you used when you first financed the home. This means you can refinance even if your home's value has plummeted since you bought it. It also means you avoid paying $400 or $500 to cover the cost of a new appraisal.
Reduced Processing Time
From the time a lender orders an appraisal, it normally takes a few weeks before the appraiser finishes the report. Since you don't have to wait on a new appraisal, FHA streamline refinance loans are much quicker to process. Additionally, the FHA doesn't require your lender to check your credit report or to verify your income. Reduced paperwork means a faster turnaround time, although your lender does have the right to check this information to see if you meet its own eligibility guidelines.
With a standard FHA loan, you have to conduct any safety-related home repairs before you can close on your loan. With a streamline refinance loan, you have to remove lead paint from your home, but you don't have to deal with other repairs. This speeds up the closing process. Some lenders may require you to conduct other necessary maintenance on your home, but any such requirements are mandated by your lender rather than the FHA.
FHA streamline refinance loans offer you a way to lower your housing expenses. You can only refinance a fixed-rate FHA loan with a streamline refinance mortgage if the new loan means a reduction in your monthly principal and interest payments. The only way your payments can increase is if you refinance from an adjustable-rate loan to a fixed-rate mortgage. Either way you benefit because either you have a lower payment or you escape from the uncertainty surrounding adjustable-rate loans. With other types of refinance loans, fees could cause your payment to rise.