The streamline refinance strategy is available to borrowers who are current on their FHA loan. When this option is used, the borrower essentially secures a second FHA loan to refinance the first.
Doing so helps to reduce the monthly payment owed. This new loan may be issued by the original lender or another who has opted into the FHA program. The key crux to this option is that the loan must provide some benefit to the borrower. For instance, a 7% reduction in principal and interest or replacing an adjustable rate mortgage with a fixed rate mortgage, would likely satisfy the requirements for the streamline refinance.
However, reducing the term of payment (i.e. from 30 years to 20 years) is not considered a "benefit" for the purposes of the FHA streamline refinance.
This option does not require the lender to take into account the present loan-to-value ratio.
*loan to value ratio - is the ratio of the first mortgage lien to the total appraised value of the real property.
| $130,000 mortgage |
| $150,000 appraised value of real property |
| LTV = 86.67% |
In order to qualify for the streamline refinance option, borrowers must not only be current but must have no more than ONE thirty-day late payment during the preceding twelve months and must have made all payments within the month due prior to applying.
In a nutshell:
- available only to borrowers who are current on their mortgage;
- borrower must have no more than ONE thirty-day late payment over the prior 12 payments;
- borrower must make all payments during the month the payment is due;
- no consideration of loan-to-value ratio;
- possible cash payment to borrower out of the refinance to help with other expenses;
- loan must provide some benefit to the borrower.