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These mortgages are strictly for FHA-to-FHA refinances. They have no FHA-required credit checks and must result in a specific tangible benefit to the borrower, such as a lower payment, lower interest rate, or moving out of an adjustable rate loan to a fixed rate FHA mortgage.

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Four Facts About FHA Streamline Refinance Loans

Four Facts About FHA Streamline Refinance Loans
November 1, 2018 - What should you know about FHA Streamline Refinance Loans? These mortgages are strictly for FHA-to-FHA refinances. They have no FHA-required credit check (or FHA-required appraisal in most cases), and must result in a specific tangible benefit to the borrower such as a lower payment, lower interest rate, moving out of an adjustable rate loan to a fixed rate FHA mortgage, etc.

The rules that govern FHA streamline refinance loans are found in HUD 4000.1, and include (but may not be limited to) the following things you should know about these FHA-to-FHA refinance loans.

#4: FHA Streamline Refinance Loan Rules for Adding a New Borrower to the Title

HUD 4000.1 instructs the lender that a new person can be added to the title of the FHA mortgage when refinancing using FHA Streamline:

“Individuals may be added to the title and Mortgage on a non-credit qualifying Streamline Refinance without a creditworthiness review.”

You read that correctly, it is possible to add someone to the title without the usual credit check, making the FHA streamline refi loan an advantage for some borrowers who need this option.

#3: FHA Streamline Refinance Cash to Close Rules

HUD 4000.1 states that the lender is required to verify the borrower’s cash to close, “..in excess of the total Mortgage Payment of the new Mortgage, in accordance with Sources of Funds” and that the lender is permitted to offer an “unsecured interest-free loan to establish a new escrow account in an amount not to exceed the present escrow balance on the existing Mortgage.”

#2: Streamline Refinance Base Loan Amounts

FHA Streamline Refi loans on owner-occupied principal residences (and also for any HUD-approved secondary residences), the Streamline Refinance maximum Base Loan Amount is calculated as the lesser of:
  • The outstanding principal balance of the existing Mortgage as of the month prior to mortgage Disbursement; plus: interest due on the existing Mortgage; and MIP due on existing Mortgage; or
  • The original principal balance of the existing Mortgage (including financed UFMIP); less any refund of UFMIP.
#1: Calculating The Maximum Mortgage Amount And Cash Back To The Borrower

Your participating FHA lender is permitted to use estimates to determine the maximum mortgage amount “to the extent that the total mortgage amount does not result in the Borrower receiving greater than $500 cash back at mortgage Disbursement” according to HUD 4000.1.

However, cash back to the borrower due to unused escrow from the original mortgage is NOT considered part of that $500 cash back limit, “whether received at or subsequent to mortgage Disbursement”.

Ask a loan officer if you have questions about these policies and how they may affect your Streamline Refinance transaction.

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