If you are looking to reduce your monthly mortgage payment, and you have an FHA loan you should learn about the benefits of an FHA Streamline Refinance. This is a program that has been available to borrowers with FHA backed mortgages for almost thirty years. In today's economy everyone is looking to reduce their monthly expenses. If there is a large difference between your existing interest rate and today's rates you could potentially shave hundreds of dollars off your mortgage payment.
How it Works
This program only works for mortgage borrowers who have FHA backed mortgage loans. Your lender can tell you if you have an FHA loan in case you are not sure. You also have to be current on your payments, so if you are in financial distress and have missed a payment or two on your loan in recent months this is probably not going to be a good option for you.
- The loan requires less documentation than normal mortgage loans, which is where the term "streamlined" comes from
- The purpose of the loan is to simply reduce the cost of your monthly principal and interest payment
- Cannot be used to "cash out" any home equity
Closing Costs
Just like any mortgage refinance, expect an FHA Streamline Refinance to have closing costs. Closing costs vary by lender, so if you are considering this type of loan you will want to shop around. FHA does not require that you close a Streamline Refinance loan with the same lender as your current mortgage; they only require that the lender be FHA approved.
Paying your closing costs (which may be about 2% - 3% of your loan balance) up front is your least expensive option if this is something you can afford to do. If this is not an option for you, most lenders offer the ability to add your closing costs to the refinanced amount. This is something that FHA approves of if the house being refinanced is your principal residence.
Investment Property
Investment property that has an FHA mortgage can also be refinanced with a Streamline Refinance, but for this type of refinance the investor borrower must pay the closing costs out of their own pocket; they cannot be financed into the loan.
Home Improvements
The cost of necessary home improvements that will not significantly change the structure of your home can be added to your refinance if you choose a slightly different type of Streamline Refinance, called an FHA 203K Streamline Refinance.
- this is not your typical "cash out" refinance because the additional funds can only be used for home improvement
- a licensed, FHA approved contractor has to estimate the job in writing and then complete the work for the estimated cost
- additional loan amounts must be between $5,000 - $35,000
- your home has to have enough equity to cover the additional funding
Get Legal Assistance
If you have questions about making large financial decisions, particularly if you are struggling in any way with your bills talk to an attorney. They can advise you about your legal options for dealing with your debt, and help you negotiate with your lender if you need to reduce your payments.
