Guidelines Are Loosening!
In an effort to improve its loan portfolio, the FHA is loosening approval standards on its popular refinance program, rendering large groups of homeowners suddenly FHA Streamline-eligible.
Now, that may seem a bit counter-intuitive — lowering qualification standards in order to reduce loan defaults — but in the FHA’s case, it makes complete sense. It’s because the FHA doesn’t make the loans. It insures them. What’s good for FHA-insured homeowners is good for the FHA, therefore.
All things equal, lower housing payments for its insured homeowners should correlate to fewer FHA loan defaults in Iowa and nationwide.
One interesting facet of the FHA’s new rulebook is the manner in which the government group is applying common sense to the approval process. So long as the homeowner is current on their mortgage and there’s a demonstrable benefit in the refinance, the FHA reasons, there’s good reason to insure the new loan.
The FHA defines “current on the mortgage” as being up-to-date on payments, and having zero 30-, 60-, or 90-day lates within the last 12 months. Demonstrating benefit is (and always has been) a little more tricky.
What are the Guidelines?
According the FHA, “benefit” is defined by refinance type.
When refinancing any fixed rate mortgage, or an existing ARM to a new ARM, the borrower’s new monthly (principal + interest) + (mortgage insurance premium) must be 5% or more below the current levels to meet the FHA’s minimum benefit requirements. This is one of the major changes because it doesn’t include taxes and insurance in the drop in payment (new taxes might make a PITI payment seem higher when the borrower is actually dropping the loan part of the payment).
The refinance of any ARM to a fixed rate mortgage is considered an acceptable benefit.
Beyond that, Streamline Refinance guidelines are simple:
- Income is not verified, or required
- Employment is not verified, or required
- Assets are not verified, unless required to meet closing costs
Note that an appraisal is not required, either This allows “underwater” homeowners to refinance their FHA-insured home loan without penalty. The downside is that without an appraisal, the new loan size may not exceed the current principal balance plus the FHA’s 1% upfront mortgage premium. All other charges must be paid as cash at closing.
The FHA Streamline program is a refinance program special to FHA-insured homeowners. If you’re wondering if you’re eligible, reach out to me. You can email me or contact me at 515-257-6729 and we can look at your scenario. You can also apply for a loan with my team for free at www.applywithtyler.com.
