If you’re looking for a way to save more money and lower the interest rates of your mortgage, one great way to do this is to refinance. It allows recalculation of your current rates so you can lock in on a lower one. It also enables you to shorten or lengthen your present loan term, whichever works best for you. Homeowners can take advantage of an array of benefits a loan refinance can offer.
Refinancing, though, should be considered a major step. And just like any other step you’d take to improve your mortgage loans, it needs thorough planning and research. So before you try, make sure you’ve done your homework.
A refinance does not happen automatically. There are important requirements that should be met before being able to refinance. This may include having to review your financial standing, credit reports and home equity. You will undergo standard documentation and verification. It may feel like having to go through the long and excruciating process of having your original loan approved (again!). Now, if there’s just any way to skip that lengthy part.
WISH NO MORE!
HUD provides homeowners with a speedy way to refinance your home loan – The FHA Streamline Refinance Program.
This refinance program by the Federal Housing Administration cuts down precious time by waiving off certain documents which would otherwise be a prerequisite to refinance. It skips the verification steps on income and employment, as well as, credit report. But the defining part of an FHA streamline refinance that sets itself apart from other refinancing programs is not requiring a home appraisal.
For conventional loans, an appraisal is needed to check on how much home equity you have built over the course of paying the loan or if you currently owe more than the property value. If you are underwater or have very little equity, you may need to pay a penalty fee before a lender approves you of a conventional loan refinance. In an FHA streamline refinance, however, you can be under these situations and still be eligible.
WHAT IS REQUIRED?
There are a few guidelines that the FHA has set to before you can refinance. Take this initial step to check if you qualify for the following:
- Your home must be under an FHA loan.
- You must allow a 210-day interval between refinances.
- You must have on-time monthly payments for the past 12 months.
- You must have perfect monthly payments for the past 12 months.
- An FHA “Net Tangible Benefit” is required.
A net tangible benefit means that you must have a valid reason to refinance. That can be to minimize the chances of having future mortgage rate increase. For this, you refinance from an adjustable-rate mortgage to a fixed-rate mortgage. Another reason is lower your overall monthly mortgage payments by 5%.
Refinancing, though, does not allow you get rid of your mortgage insurance premiums. You will still need to pay them after you refinance but it can significantly reduce under certain circumstances. You can ask your lender on how you can make that possible.
WHAT ARE OVERLAYS?
As mentioned earlier, income, employment and credit verifications are not required in this program. It should be noted, though, that FHA is the insurer and not the provider of the loan funds. In this case, lenders may put “overlays”.
What happens is a lender may require you to meet certain standards to be able to refinance. This is why it is best to talk to as many approved lenders as possible.One lender may turn you down after not being able to meet the overlay requirements, another may be willing to approve you for a refinance.
FHA WANT YOU TO AFFORD YOUR LOANS BETTER
It should be emphasized that “speedy” does not always correlate to “easy”. The FHA streamline refinance eliminates the tedious process of documentation and verification, making it quick. But if, say, you have late payments in the past months, you may need to improve them by starting to pay your mortgage in full on time.
Refinancing will require you to put a little more effort for you to be eligible. Patience is the key. Work on meeting the standard guidelines established by FHA. In the end, your effort will pay off.
Remember, FHA’s goal is to help make more people be eligible for lower rates so they can keep up with their monthly payables, thus, reducing the risk of loan defaults. Talk to a lender today and establish whether or not it is the right time to refinance your FHA home loan.