FHA Home Loans Refinancing

No Cost FHA Streamline Refinance Loans

07.22.10

The FHA streamline loan is a popular refinance option for homeowners that already have an FHA mortgage.  The FHA streamline refinance has been popular because the FHA interest rates are low, the closing costs are affordable and the refinancing process is simplified compared to the long drawn-out measures of traditional refinancing.  Borrowers need less paperwork, as income documentation and appraisal requirements are often reduced with FHA streamline refinancing.

It is no secret that the Federal Housing Administration has made significant efforts to make sure that qualified borrowers really want the FHA streamline refinance loan.  Recently, FHA enacted big changes for the FHA streamline guidelines.  Now borrowers that want to lower their interest rate with the FHA streamline must pay for closing costs out of their pocket.  FHA does not allow borrowers to finance any closing costs when streamline refinancing.  That means in most cases that FHA borrowers are covering the $2,000 to $3,000 in lending costs from their savings.

Did FHA go too far in tightening the Streamline Guidelines?

The thinking behind the streamline tightening is that by requiring borrowers to pay the closing costs out of their pocket that they will think twice before refinancing and loan defaults will decrease.  FHA streamlines have never allowed cash out and they have not been a problem for defaults and foreclosures.  With depreciating values nationwide it would appear that FHA is protecting themselves and borrowers from increased mortgage balances that would come from a borrower financing the lender fees and closing costs into their FHA streamline loan.  For example, before the streamline guideline change if a borrower had $300,000 mortgage balance, it would be $303,000 after the refinance.  If a borrower refinanced once a year, after a while the balance would be $320,000 and with declining values, this increases the risk as more homeowners would be underwater with their mortgages.

The No Cost FHA Streamline Solution

There are approved FHA lenders that are offering no cost mortgage refinance opportunities for a select group of borrowers.  If you have good income and high credit scores above 700, there is a good possibility that you may qualify for a no cost streamline refinance in which the lender is paying for the closing costs on their end.  This way you do not have to come out of pocket to cover the closing costs and your mortgage balance would not go up because you are not financing fees that FHA will not allow anymore anyways.  Qualifying for no cost FHA streamline loans will take some shopping online to find a credible FHA lender that offers these unique refinancing incentives, but clearly it will be worth it financially in the long run.

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3 comments so far

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Partially true. I am a licensed mortgage loan officer and am able to do a no-cost streamline with scores as low as 620, while still allowing the borrowers to skip a payment.





 

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