FHA Streamline Refinancing Requirements
Requirements for the Borrower
Before moving forward with a FHA Streamline Refinance, you need to make sure that you and your current loan meets the basic requirements. These requirements come directly from the Department of Housing and Urban Development (HUD) which oversees the FHA.
To review, the basic requirements are:
Your current loan must be an FHA loan.
The mortgage that you plan to refinance must be current and have no delinquent payments.
There must be a “net tangible benefit” once the loan is refinanced.
You may not take out cash over $500 using this program.
These are the basic requirements that you’ll need to meet to even start the process. However, there are other requirements that will be detailed throughout your application. The FHA Streamline Refinancing process cuts a lot of steps, but you still need to qualify under the requirements of an FHA loan.
Credit Score: The same basic requirements for an FHA loan apply to refinancing. At the time of using FHA Streamline Refinancing, you must have a credit score over 580, which, when making the initial purchase, will allow you to buy with only a 3.5% down payment. If your score is below 580, you need a 10% down payment to use an FHA loan.
Debt-to-Income Ratio (DTI): Debt-to-income ratio is an important benchmark for lenders. Calculated monthly, this is simply a comparison of the amount you owe every month (debt) compared to the amount you earn (income). The allowable DTI is 43% for FHA loans, although this may be increased to as high as 50% if you have a strong credit profile and significant cash reserves or additional income.
Ownership Time Frame: To qualify for this program, you will need to have owned the home for at least six months. If you have only owned the property for five months or less, you’ll have to wait before this option becomes available.
Approved Lender: To have this option available, you can only use approved lenders. Lenders are given specific training and meet the high standards of the FHA before they can offer this option. Make sure the lender can actually provide FHA Streamline Refinancing before you proceed. (More on lender approval below.)
Loan Limit: The loan you acquire through refinancing cannot exceed the amount of your original loan. This is tied to the initial appraisal, but it mostly acts as a convenient way of capping the loans at a certain amount, since no appraisal is required.
Closing Costs Upfront: Unless they are rolled into the loan total, you will have to pay your closing costs and other fees before the loan is given.
If you and the loan meet the above requirements, you can start collecting the appropriate documents.
These documents include:
Two months of bank statements. These will be used to prove you can afford the costs for refinancing the loan.
Information on your mortgage. This will be needed to demonstrate your current loan rate as well as the terms for repayment.
A copy of the mortgage statement. This will be used to prove that you have not missed any monthly mortgage payments.
Insurance information. This will be required to demonstrate that your home is properly insured. Loans on uninsured homes have higher financial risks, which is why lenders need this information.
Although some documents are required, the amount of paperwork you need for FHA Streamline Refinancing remains minimal compared to other loan options.