FHA Streamline Rates Hit The Low 3s; Refinance Activity Up 205%

FHA Streamline Numbers Rise As Rates Fall

Homeowners can’t get enough of the FHA streamline refinance.

According to the group that administers FHA loans, the number of FHA streamline refinances is on pace to double in 2016.

The first quarter of 2015 saw just 31,000 homeowners complete an FHA streamline refinance. That number rose to more than 63,000 the same period this year.

FHA mortgage rates in the low 3s are prompting homeowners to refinance, many of whom already have very low rates. Rates can be taken lower still.

Zero-out-of-pocket refinances are fueling the FHA refinance boom, too.

FHA homeowners are discovering they are now eligible for lower payments, even if it didn’t make sense for them to refinance a few months ago.

What Is An FHA Streamline Refinance?

The Federal Housing Administration (FHA) offers a special refinance program for homeowners who have an existing FHA loan: the FHA streamline refinance.

A home loan refinance is when a new mortgage replaces an existing one. An FHA streamline refinance is the same, but with a twist. The applicant does not have to prove income to qualify for the loan.

If the is in good standing, the lender assumes the applicant is making sufficient money to pay the loan. No further verification is required.

The bigger benefit to this loan, some would argue, is the ability to refinance without an appraisal.

After the housing downturn, millions of homeowners found themselves “underwater,” or owing more on their home than it was worth. The government launched an altogether new loan type, called the Home Affordable Refinance Program, or HARP, to help mortgage holders with a Fannie Mae or Freddie Mac conventional loan.

But no such loan was needed for FHA borrowers.

A program was already in place to help them, namely the streamline refinance. Guidelines were in place stating that the borrower needed no appraisal to qualify. Current value didn’t matter.

This provision is still helping homeowners today. Home values have scratched their way back to up to pre-recession levels, but many homeowners are still at near-zero equity — so little equity that they would not qualify for a traditional refinance.

Massive equity or none at all, it doesn’t matter with the FHA streamline. Lenders will drop the rate and payment to currently available FHA streamline rates without knowing the home’s current value.

“Fixing” An FHA Adjustable Rate Loan

Most FHA streamline applicants will refinance from one fixed-rate loan to another.

But some homeowners received an FHA adjustable rate mortgage (ARM) when they purchased or last refinanced their home.

Accepting an ARM loan is a smart decision for some home buyers, especially those who do not plan to stay in the home or keep the mortgage for more than five years.

FHA ARM rates are extremely low, often in the 2s. The initial rate is fixed for five years then starts adjusting based on market rates.

Home buyers who will refinance, sell the home, or pay off the mortgage can save thousands in interest by taking this short-term, ultra-low rate.

But some homeowners discover, sometime within that five-year period, that they don’t want to sell the home. Instead, they refinance. The FHA streamline refinance can convert an adjustable rate to a fixed one.

Yet, there are certain rules around how a streamline refinance can be used.

When the FHA ARM is still in its five-year fixed period, the refinance must result in a 5% reduction in the applicant’s overall payment.

For instance, if the homeowner’s payment is $1,000 including principal, interest, and mortgage insurance, the new payment can’t exceed $950.

The rule is modified if the homeowner’s FHA loan is currently adjusting.

In that case, the new refinance rate must be no more than 2% above the FHA loan’s current interest rate.

In either case, the FHA homeowner has the opportunity to lower their payment, fix their rate for up to 30 years, or both.

Who Qualifies For An FHA Streamline?

Most traditional underwriting requirements will not apply to the FHA streamline refinance. Still, the program does require homeowners to meet a few minimum standards.

The homeowner must be living in the home they plan to refinance. The program is meant to bolster family finances, not lower costs for real estate investors.

The main eligibility points are as follows.

• One mortgage late in the last 12 months is permitted
• A perfect payment history over the previous three-month payment is required
• A lender credit or cash payment for closing costs is acceptable
• The homeowner’s payment must drop by at least 5%
• Homeowners can receive cash back if the amount is less than $500 at closing

In addition, applicants must make six payments on their current FHA loan before applying for an FHA streamline.

Guidelines are light for this program, clearing the way for homeowners to take advantage of today’s rates in the low 3s.

What Are Today’s FHA Streamline Rates?

The streamline refinance process is a relatively simple and fast loan compared to a traditional mortgage refinance. Compare lenders for even better rates and costs.

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