If you own a home in Wisconsin and have a current FHA mortgage, you have probably received several flyers in the mail advertising the FHA streamline refinance. Flyers stating “Lower your interest rate with a Wisconsin FHA streamline refinance!” or “The government has just reduced the mortgage insurance on FHA mortgages!” So what exactly is an FHA streamline refinance, and what makes it so different from a traditional refinance?
The FHA Streamline Refinance Difference
If you’ve already taken a journey through the mortgage process in Dane County or other counties in Wisconsin, you know how much documentation is required to get the job done. Other refinance options are great because they save you money, but the qualification process can be tedious and time consuming. Sometimes the process can lead to a turndown, even worse, you can end up with upfront costs that are nonrefundable. That’s what makes the FHA streamline refinance stand apart; it’s a simplified way to refinance an existing FHA mortgage. Not only is it fast and simple to get a Wisconsin FHA streamline refinance, but there are some perks that you just don’t see with other refinance options. Perks like refinancing even if you owe more on your home than the current value, or refinancing if you have very little equity in your home. Also, there is no appraisal required so there are no upfront costs. The FHA streamline program has a few requirements. You must have a current FHA mortgage, your currant mortgage cannot be in default, and at least one borrower must be employed (including self-employment).
Sound too good to be true? Well it’s not. The FHA streamline refinance is designed to help the housing market and help reduce foreclosures. It’s just smart business. The Federal Housing Administration insures the FHA mortgage, it does not sell the FHA mortgage. The government does not lose money when you save money. Instead, FHA realizes that a lower monthly payment will increase the chance that borrowers will continue to make their monthly payments. It’s a win-win situation, one that the conventional mortgage industry is slow to realize.
The A-B-C’s of FHA Streamline Refinancing
A is for Appraisal
You do not need an appraisal for a Wisconsin FHA streamline refinance, but why is that a big deal? First, an appraisal costs money upfront. The average cost of an appraisal is $300-$500, which not all of us have laying around these days. That cost is incurred on any other mortgage or refinance program and it is nonrefundable. So even if the loan isn’t approved, you are still responsible for that cost. Secondly, mortgages get turned down every day related solely to the appraisal. If the current appraised value is less than the requested loan amount, you need to make up the difference or the loan is denied.
Let’s look at an example of what happens all too often. Homeowner Smith wants to refinance his home. Mr. Smith owes $200,000, but his appraisal comes back at $190,000. Unless he comes up with the difference, the deal is dead…and he just wasted $400 on the very thing that killed the deal, the appraisal. With an FHA streamline refinance, an appraisal is not required. The lender will use the original value of your home when you received your original FHA-insured mortgage to determine eligibility. Obviously saving the money it costs for an appraisal is a great benefit, but even better is the fact that you won’t lose your eligibility related to the appraisal. Eliminating the appraisal factor also saves time allowing you to close sooner on your Wisconsin FHA streamline refinance.
B is for Benefit
Net tangible benefit to the borrower is required in order to refinance under the Wisconsin FHA streamline program. The magic number happens to be 5% net tangible benefit to be exact. In other words, you must save at least 5% on your monthly payment which includes your mortgage principle + interest + monthly mortgage insurance premium (MIP). For example, if your current monthly mortgage payment is $1,000 (principle/interest/MIP); your new monthly mortgage payment must be reduced by at least $50.
Another qualifying benefit for the FHA streamline refinance is refinancing your current FHA Adjustable Rate Mortgage (ARM) to a fixed rate FHA mortgage. In this instance you may use the program as long as the new interest rate does not exceed a 2% increase. FHA does not consider a reduction in term (in other words going from a 30 year fixed to 15 year fixed rate) a benefit. Term reduction refinances are still able to be done with other FHA refinance programs though.
Basically the Federal Housing Administration states you must improve your mortgage in some way that benefits you in order to proceed with the FHA streamline refinance. Well, duh, you might say – why would I refinance if it doesn’t benefit me? Unfortunately there were some misleading recommendations made years ago encouraging borrowers to “refinance now”. There was a benefit all right, but it was benefiting the lenders more than the borrowers. The government uses this specific requirement to protect borrowers.
C is for Credit Score
Your credit score is not required to secure an FHA streamline refinance. There is no other program available that would allow someone with a credit score below 500 to obtain a mortgage or refinance a mortgage. So how can the FHA streamline refinance program ignore this most coveted tool? The FHA relies on your payment history as a determining factor. You won’t be turned down for a Wisconsin FHA streamline refinance if you had a mishap with your credit card or auto loan, or if you have outstanding medical bills. However, if you don’t pay your current FHA mortgage on time, this will be a problem. This leads us to the letter D.
D is for Default
If your FHA mortgage is currently in default, you will not be eligible for an FHA streamline refinance at this time. This is really rule number one when it comes to an FHA streamline refinance. Remember FHA does not lend the money, it insures the money that has been lent. The goal is to decrease default and ultimately reduce the number of foreclosures. If you have proven that you are reliable and pay your mortgage on time, you decrease your risk factor significantly. So, what are the requirements? You’re payment history in the last three months needs to be flawless. No late payments of 30 days or greater for a total of 3 payments. FHA also looks at the last 12 payments and has determined that you cannot have more than one late payment (30 or more days late) in the last 12 months. If you have any questions about what constitutes as a late payment, contact an experienced Wisconsin FHA mortgage advisor.
E is for Employment Documents
FHA does not require employment documents for an FHA streamline refinance. Great news if you’ve recently started a new job or one of two borrowers is currently between jobs. Other mortgage programs require up to two years of employment history. When you apply for a Wisconsin FHA streamline refinance you won’t need to provide tax returns, paystubs or W2s. Your employer won’t be required by FHA to fill out a written verification of employment. This information can be obtained over the phone. Generally, collecting all of this documentation takes time. Since FHA doesn’t require as much shuffling of paperwork for the streamline, these refinances have a very quick turnaround time. Again, FHA does this because they are more concerned about your payment history than your employment history. The program is designed to help reduce monthly payments which can be very helpful in the event you have had a change in employment or income.
F is for FHA Mortgage
In order to obtain an FHA streamline refinance, you must currently have an FHA mortgage. This program is designed solely for existing FHA mortgage holders. You are not eligible for a streamline if you currently have a conventional, USDA or VA mortgage. In order to be eligible for an FHA streamline, you must have made at least 6 mortgage payments on your current FHA mortgage. FHA allows this program to be used over and over simply requiring a minimum of 210 days to pass since your most recent closing date.
G is for General Information Regarding the Wisconsin FHA Streamline Program
The FHA streamline is not a cash out program. There are other Wisconsin FHA refinance programs available to obtain cash back for home improvement, debt consolidation, or have cash for other financial needs.
Your debt ratio is not figured into the Wisconsin FHA streamline application process. Debt ratio can often be another big deal breaker in other Wisconsin mortgage refinance programs. This program is not limited to a one time only use.
You may use the Wisconsin FHA streamline refinance over and over as long as you continue to meet minimum requirements. The property being refinance must be owner occupied, in other words it cannot be a rental property or second home.
You may use the FHA streamline to add or remove individuals from title. This is extremely beneficial during divorce and when there is a co-borrower/signer on the original FHA mortgage.
Lenders are allowed to offer no-cost refinance options. This means you may not need to bring a penny to the closing of your new FHA streamline refinance.
Upfront and annual mortgage insurance premiums are still required, but there are several smart ways to cover these expenses while still saving you money.
With an expert Wisconsin FHA mortgage advisor in your corner, you may have access to even more savings. Not all mortgages are created equal and not all government mortgage specialists are created equal. An experienced Wisconsin loan officer will be able to not only access the best deals, but also be able to explain how and why you are able to save more money.
The Next Step
It’s never easy to understand the ins and outs of refinance benefits. You need an experienced Wisconsin FHA mortgage advisor who can answer all of your questions and find you the most savings available for your specific situation. Don’t hesitate to research your loan officer through the Nationwide Multistate Licensing System (NMLS), reviews and testimonials. Trust your instincts when choosing the Wisconsin home loan specialist who is right for you.
If you currently have a Wisconsin FHA mortgage and are looking for an easy way to reduce your monthly payments, you can fill out a simple online application to determine eligibility and benefit. This no-obligation application process does not lock you in and your information remains private. There is no risk, but there could be a lot of reward if you currently qualify for a Wisconsin FHA streamline refinance. If you simply have questions regarding the Wisconsin FHA streamline or any other mortgage program, please call 608-572-7222 to get answers.