If you still owe more on your home than it is worth, you might feel like your only option is to either stay and suck it up or let the bank take your home in foreclosure. Luckily, you have another option that many people do not realize is available. If you have an FHA loan now, you can refinance your home in an FHA Streamline refinance. This program is simple to qualify for and it does not matter if you are underwater!
Appraisal Values Don’t Matter
In an odd way, the value of your home today does not play a role in the FHA Streamline loan. You do not have to have a new appraisal conducted; the lender can use the original appraisal. Of course, not every lender is going to abide by this rule, so you will have to find a lender that is willing to use your original appraisal, but they are out there.
Your Payment History Matters
The biggest thing FHA approved lenders worry about before providing you with an FHA Streamline loan is whether or not your payment history is current. If you are behind on your mortgage payments, you will not get approved for this loan. Basically, lenders want to see a perfect mortgage payment history for at least the last three months. In addition, the 9 months prior to the last 3 months can only have a maximum of one late payment during that time. In the end, this means you can only have 1 late payment in the last 12 months, but it cannot occur within the three months preceding your application for the loan.
Lower Your Rate
The largest benefit of refinancing if you are underwater is the ability lower your rate. With a lower rate, you can pay down the principal balance of your loan faster. Even if you have had the loan for a while and have always made your payments on time, if you are underwater, you are getting nowhere, so it makes sense to refinance. The lower rate allows you to get your principal paid down faster simply because less of the payment goes towards interest. If you have the ability once the payment is lowered, you can even make extra payments towards the principal.
MI Gets Refunded
Many people worry about the MI that they paid already on their original FHA loan because they know they will have to pay additional fees on a new FHA loan. The good news is that you will get a refund of your original upfront MI charges, not the monthly MI charges. Depending on when you refinance the first loan, you can get as much as a 70 percent refund of the MI. This refund gets applied directly to the new MI charges you have to pay on the new streamline loan. This helps you to afford the new loan a little easier as you will have to pay closing costs that are associated with the loan as well.
Show a Benefit
One of the main concerns of the FHA is that the new FHA loan provides you a tangible benefit. What this means is that the new loan lowers your payment, allowing you to save money every month. You have to be able to show these savings in order to get approved. The only exception to this rule is if you currently have an adjustable rate mortgage and wish to refinance into fixed rate mortgage. Since a fixed rate mortgage is less risky than an adjustable rate, the savings do not matter for approval purposes.
If you are underwater and are finding a hard time getting out, refinancing with the FHA Streamline loan just makes sense. Even if you did not want to get another FHA loan, if you got your original FHA loan less than 3 years ago, you will not pay much for the new loan because the upfront MI can be credited from your original loan. You can work with your lender to minimize the closing costs or even negotiate a no closing cost loan, taking a slightly higher interest rate in return. In the end, you will have a loan that is more affordable, allowing you to get ahead on your mortgage payments and to gain some equity back in your home. It is unfortunate what happened to the housing industry, causing so many homeowners such strife, but with the right programs, every homeowner can dig their way out and eventually see a return on their investment again.