Homeowners with a current FHA mortgage have something that others don't, that is the opportunity to refinance with no income verification, using an FHA streamline refinance.
A stated income loan seemed to be a thing of the past but, FHA will streamline a mortgage refinance to reduce the documentation and underwriting normally required. That means no tax returns, W-2 forms, or pay stubs, and no bank statements to verify assets. Also, FHA does not require a credit report, but some lenders may require one for pricing the rate. A verification of mortgage is required to determine if the loan is delinquent, which is not allowed.
Another potential benefit of the FHA streamline refinance program is that a home appraisal may not be needed. So, in addition to being like a stated income loan, without verifying income or assets, this loan can also eliminate value as an obstacle, especially in a declining housing market.
As with all government programs, there are certain rules and limitations that determine if a refinance will fit into the FHA streamline guidelines, including the following:
1. The current mortgage to be refinanced must already be FHA loan
2. The subject property must be the borrower's primary residence
3. The current mortgage to be refinanced should not be delinquent
4. The streamline refinance only allows a maximum of $500 cash out
5. The refinance must result in reducing principal and interest payments
When getting an FHA streamline refinance without using a new appraisal, the maximum loan amount will be determined by using the lesser of the following two calculations:
1. The original principal balance of the existing FHA mortgage, plus the new up front mortgage insurance premium, which is currently 1.5% on a streamline refinance.
2. The existing FHA mortgage, plus closing costs, prepaid taxes, insurance, interest, and the new up front mortgage insurance premium. Subtract refund of old premium.
When using a new appraisal for an FHA streamline refinance, the maximum loan amount will be determined by the lesser of the following two calculations:
1. The appraised value multiplied by the maximum loan to value percentage, which usually ranges from 97% to 97.75% depending on the state and the loan amount.
2. The existing FHA mortgage, plus the closing costs, prepaid property taxes, hazard insurance, up to 30 days interest, and subtract any refund of insurance premium.
If there is a line of credit or second mortgage on the home, the lien holder must agree to re-subordinate their loan regardless of the combined loan to value. The total amounts of the first and second mortgages can exceed the normal loan to value and the maximum mortgage limit.
Article written by Rick Smith at http://www.crhome.com, additional FHA mortgage information at http://www.ditech.com
