Is the FHA Streamline Refinance A Good Idea?
If your goal is to reduce your interest rate and monthly payment, while minimizing paperwork and closing costs, then the FHA Streamline program may be a good fit.
Unlike other refinance programs, the FHA Streamline refinance can be processed without a credit check, income documents, or even a new appraisal.
Because of this, homeowners who are underwater and owe more than the full market value of the home tend to favor the FHA streamline since LTV is not a factor.
The reduced paperwork also results in a much faster and hassle free refinance process when compared to traditional mortgage programs.
Skipping the appraisal also means the closing costs are $500-$1000 less than most other refinance programs, as well.
The FHA Streamline isn’t perfect for everyone. It does have its limitations.
First off, your current mortgage must already be an FHA backed loan.
It's because the Federal Housing Administration has already evaluated your credit, income, and property that it allows for the reduced paperwork for the streamline.
Next, FHA Streamlines also limit the cash back you can receive at closing to $500, so this program may not be a good fit if your goal is to take out cash to pay off debt or make home renovations.
Finally, closing costs cannot be rolled into the loan.
Most refinance programs will allow you to increase the loan amount to cover your closing costs.
FHA, however, will not allow you to increase the loan size for any closing costs other than the upfront insurance premium that is required with all FHA loans.
However, some lenders can circumvent this limitation by offering a slightly higher interest rate, then using those proceeds to cover the closing costs.