The Benefits and Disadvantages of FHA Streamline Loans
FHA Streamline Refinancing is the fastest way to refinance an FHA home loan. While this type of refinancing has a variety of upsides, it also has certain disadvantages as well. In this article, we’ll examine both, in order to help you decide if an FHA Streamline Refinance could be a good fit for your individual needs.
Advantages of FHA Streamline Refinancing
As we’ve discussed elsewhere on this site, FHA Streamline Refinancing has many advantages that are extremely important to homeowners who currently have an FHA loan.
First and foremost, the FHA Streamline Refinancing program does not require an appraisal. You can use the original purchase price as the representation of your home’s current value, which will save you from the costs and hassle of having an appraisal completed. With no appraisal, the refinancing process is both faster and more affordable.
Another advantage is the fact that there is no income verification. If you have lost your job or have seen a reduction in income, this advantage makes the program much more accessible.
One of the top advantages is that the rates are the same as regular FHA mortgages. Although it has many benefits, such as lower credit requirements, it still has interest rates that are as low as other FHA mortgage programs.
Perhaps best of all, there is absolutely no prepayment penalty! If you want to repay the loan and move on with your life, you can do so.
Downsides of FHA Streamline Refinancing
Like every option in real estate mortgages, there are advantages and disadvantages to using the program. One of the main disadvantages is that you must pay your mortgage insurance upfront if you take out a new loan. You can finance the upfront fee into your total loan amount under certain circumstances, but this will increase your total balance, meaning your monthly payments won’t be as low as they would be if you paid upfront.
Also, you have to pay the closing costs upfront with available cash. If this is not possible, you’ll need to work with a lender who can perform a no-cost refinance, which will result in a higher interest rate.
Also, the mortgage insurance on your loan cannot be canceled. With other loans, once you reach a certain equity point (usually about 20%), the mortgage insurance can be canceled. With FHA Streamline Refinancing, you will have to pay mortgage insurance throughout the life of your loan, regardless of how much equity you have gained.