The FHA streamline program aims to spare homeowners from the headache of refinancing their mortgage. Unlike a regular refinance process, FHA streamline refinancing doesn’t require as much documentation, and the underwriting process doesn’t take up as much time. Moreover, home appraisals, credit scores and employment or income evaluation aren’t necessarily taken into consideration. In other words, it provides a shortcut to refinancing. But the FHA streamline program isn’t exactly problem-proof.
List of Pros of the FHA Streamline Program
1. Easy to qualify.
Don’t have a stellar credit score? That is not a problem with FHA financing, what with credit check or employment verification not one of the requirements. So even if you have a credit score of less than 740 and above 620, you can still apply for FHA streamline program.
2. No Home appraisal required.
With this refinancing scheme, it won’t matter even if you owe more on your mortgage than your property’s worth, because appraisal is not required. All you need to do is find a lender that doesn’t require an appraisal, and operates under the FHA streamline program.
List of Cons of FHA Streamline Program
1. Not applicable to everyone.
It may be easier to qualify for an FHA loan, but homeowners have to meet basic requirements to be approved for a streamline refinance. Your original mortgage must be insured by the FHA. Otherwise, you won’t qualify. So if you got your mortgage from a traditional lender or a bank, FHA streamline program is not for you.
2. Lack of property appraisal.
It may seem illogical for an advantage to become a disadvantage, but no appraisal could mean that the loan will be based on an amount that might be lower than your property’s worth. This is why an accurate appraisal is necessary, because a higher valuation could mean better refinancing products to choose from.
3. Higher upfront payment of mortgage insurance.
An upfront payment for mortgage insurance is a requirement when you take out a new FHA loan. This becomes a problem if your loan-to-value ratio is higher than 78%, because you must pay annual insurance premiums on your mortgage. It is even higher on your new loan if you took out the original loan after June 1, 2009. Your loan balance and monthly payment would also increase due to the mortgage insurance.
4. Problems with the closing costs.
In a traditional mortgage you may be allowed to wrap the closing costs into your loan balance, but this is not the case with an FHA streamline refinance. This is because you have to pay your closing costs up front or find a lender that offers zero cost refinance, which isn’t exactly zero. Although you don’t have to pay closing costs with “zero cost”, the amount is actually spread out over the life of your loan through a slightly higher interest rate. Suffice to say that there’s no getting away from the closing cost, lender-paid or otherwise.
If you took out your mortgage before June 1, 2009 and is insured under FHA, the FHA streamline program could be right for you.