If you have an FHA loan you may have the opportunity to refinance it with the FHA streamline loan. This program allows you to refinance your FHA loan with very little verification. With just your payment history and proof that you benefit from the loan, you can get an FHA streamline refinance.
Do you have to use the same lender though?
Luckily, that answer is ‘no.’ You are free to shop with any FHA lender that you want for the loan. In fact, we recommend that you shop around with at least 3 lenders so that you know you are getting the best deal. In order to increase your chances of securing the best terms, though, you should do the following.
Have a Timely Mortgage Payment History
Because the FHA doesn’t require lenders to verify your credit score, income, assets, or debts, lenders put a lot of emphasis on your mortgage payment history. The FHA requires that you have proof of timely mortgage payments for the last 12 months. They do, however, allow a one-time exception for one 30-day late payment. Not all lenders will allow this, though.
If you want to shop around and find the lender with the best terms, you should go to them with a 12-month timely mortgage payment history. In other words, you shouldn’t have any late payments within the last 12 months.
A timely mortgage payment history tells lenders that you can comfortably afford your current mortgage payment. Since the FHA streamline program isn’t a cash-out program, you should be getting a lower payment or loan with better terms. If you have proof that you made your current mortgage payments on time, the lender can assume you’ll make the more favorable loan payments on time as well.
Have Proof of the Benefit of the Loan
If you want to change lenders, you have to give them a reason to loan you the money. Your current lender already knows your payment habits and what type of borrower you are, so the decision may be easy for them.
A new lender doesn’t know you at all. Because they don’t need to verify your income, assets, debts, or even your credit score, they will exercise caution. They will need a solid reason to give you the loan, which should be that you benefit from it.
Just how can you benefit from a new loan? Here are some common examples:
- A lower interest rate that results in a lower payment
- A shorter term that helps you own the home faster
- Refinance out of an ARM into a fixed rate loan
The bigger the reason, the more willing a new lender may be to give you a new FHA loan.
What to Look for in a Lender
So now that you know that you can use a different FHA lender for your FHA streamline refinance, it’s time to figure out what to look for in a lender.
No two FHA lenders are the same. They each have different requirements and they each charge different rates/fees for their loans. As you shop around, make sure you ask about the lender’s ‘overlays.’ This is a fancy name for additional requirements on top of the two basic FHA requirements. For example, some lenders insist on pulling your credit or running an automatic valuation on your home. They do this to make sure you are a good risk.
In addition to the lender’s requirements, you should know what a lender charges. Your point in getting the FHA streamline refinance is probably to have a lower rate, payment or both. That’s why you need to find the lender that will give you the best interest rate as well as the lowest fees. Don’t get caught up in the interest rate and forget to look at the fees.
Typically, the charges on a streamline FHA loan are much lower than your regular FHA loan, but pay close attention to fees such as the origination fee or discount point fees. These can add several thousand dollars to the cost of your loan.
We recommend that you check out what your current FHA lender has to offer as well as what other lenders offer. This way you can effectively compare your options to decide which loan is right for you.