Federal Housing Administration (FHA)-insured mortgages have skyrocketed since 2006, and now FHA “streamlined” refinancing programs are following suit.
What’s not to love? FHA loans can be more consumer friendly, don’t require a home appraisal and it does not matter if your home is underwater (meaning the appraised value is less than the amount of money you owe on your mortgage loan).
But now the FHA’s streamlined loan may have consumers lining up and waving their checkbooks.
Here are the details. FHA streamlined loans, also known as “rate reduction” loans are designed specifically for one big task; to reduce a homeowner’s monthly mortgage payment. It’s not rocket science but for the most part, it's flying under the radar, possibly because only FHA mortgage-holders qualify.
But if you do qualify for an FHA streamlined mortgage, the package looks like a good one; maybe the most consumer-friendly and cost-effective refinancing program out there.
Why? To start off, the FHA has built a nice incentive in for lenders that goes like this. The FHA won’t sign off on a streamlined loan unless the new monthly mortgage payment is lower than the current monthly mortgage payment.
Another eye-opener Is that an FHA streamlined refinance loan does not require you to get a home appraisal. If that doesn’t get a cash-strapped homeowner’s attention, the FHA will also work with borrowers whose home mortgage values are “underwater”.
There’s another cash incentive for FHA borrowers. If a borrower has had a mortgage loan for less than five years, the FHA will refund part of the original closing costs back to the homeowner.
FHA streamlined loans also don’t require as much paperwork as more traditional home financing programs from Fannie Mae (Stock Quote: FNM) or Freddie Mac (Stock Quote: FRE). In lieu of the housing market crash, which was partly fueled by easy-credit, no-look-see loans from aggressive lenders, most traditional lenders are making loan candidates jump through hoops. But FHA streamlined loans are different. Borrowers are not required to provide any W-2 tax forms or any employee pay stubs. All you need to do is prove that you hold a job.
Though, it’s not just a simple cakewalk for FHA loan applicants. You’ve got to be current on your home loans. Even a single 30-day late payment is enough to gum up the works. In addition, a potential borrower must establish a good history of making their mortgage payments; six-months worth of on-time mortgage payments must usually be established. Credit scores will also weigh into the equation and most likely anything under 620 will cut you out of the deal (although it’s still a good idea to check with your FHA lender first).
All FHA loans are backed by the full faith and credit of the Federal Housing Administration, thus greasing the skids for more lenders to get into the game.
If you want to refinance, and you have an FHA loan, streamlining it may be the best way to go.
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.