FHA Streamline Refinancing

Since the early 1980s, the FHA has had a program in place that permits streamlined refinancing. In order to be eligible for this type of refinancing, your mortgage must already be insured by FHA. The term streamliningcan be misleading. It does not refer in any way to the costs of refinancing. Instead, streamlining refers to the amount of paperwork, such as documentation and underwriting, necessary for refinancing.

As mentioned previously, the mortgage to be refinanced has to be insured by FHA. For streamlined financing, you should also be current on your mortgage (delinquent mortgages generally cannot be refinanced). The refinance must also result in lowered monthly payments of both interest and principal for the borrower. Finally, if you use the streamlined refinancing process, you cannot take cash out on your mortgage.

Companies may offer streamlined refinancing in more than one way. Some companies prefer the no cost refinancing method, where there are no out-of-pocket costs for the borrower. This method of refinancing charges a higher rate of interest in exchange for not requiring the borrower to finance or pay the closing costs in cash. The higher rate allows the company to recoup the closing costs associated with the refinancing transaction.

If there is sufficient equity, companies may offer streamlined refinancing by including closing costs in the new mortgage. Whether there is sufficient equity to allow the closing costs is determined through an appraisal. Streamline refinancing can also be done without an appraisal, but the closing costs cannot be added to the principal, but instead paid in cash or added to the interest rate as described above. For investment properties (properties that are not the borrowers principal residence), which can only be refinanced without an appraisal, this type of streamlined refinancing is not allowed.