The Federal Housing Administration (FHA) uses refinancing to help homeowners get rid of their underwater mortgages and get back on their feet as quickly as possible. The government agency launched the FHA streamline in Utah and other parts of the United States to simplify the process and encourage more Americans to refinance.
This program eliminates the need for an appraisal, so the original value of your house will be the basis of the new loan balance. In other worlds, you could borrow more money even if your property’s worth is lower than it used to be.
Furthermore, the FHA streamline refinance does not involve traditional mortgage verification. You could be unemployed and still be considered eligible for the program.
Despite the lax requirements of the FHA streamline refinance, not everyone qualifies for it. If you do not want to miss out on this beneficial program, understand the possible reasons you might be denied. Below are the most common explanations for FHA Streamline Refinance rejections.
This program is applicable for refinancing FHA loans. If your mortgage is not backed by the FHA, then you can’t take advantage of its friendly criteria.
In theory, borrowers of every credit can qualify for the FHA streamline refinance. Even if your FICO scores are below 500, you can still use it to get fresh loan terms, snag a lower interest rate, and enjoy more manageable monthly repayments.
However, there is this thing called “lender overlay.” Not all FHA lenders have to operate within the guidelines set forth by the agency, so they can observe different minimum requirements when choosing customers.
If your prospective mortgage lender accommodates borrowers with at least fair credit, you might be denied if your FICO scores are less than 580.
Fortunately, not all lenders create their own credit score minimum requirement. Shop around hard to find those willing to refinance your FHA loan even if your credit is bad.
The FHA streamline refinance requires a near-perfect payment history. To qualify, your past three mortgage payments must be made on time. Moreover, you are allowed to be past due just once in the past 12 months before applying for the program.
In the mortgage industry, a missed payment is not considered late as long as it is made 15 days starting on the due date. If your mortgage payment’s due date is on the 1st of the month, you can still pay it on or before the 15th of the month to avoid an impactful late payment.
You must hold on to your FHA-insured loan for a minimum of six months or 210 days before you can apply for the program. The countdown begins from the closing date. The waiting period is necessary because the FHA wants a borrower to establish a six-month payment history first.
As mentioned, the spirit of the program is to alleviate the “negative equity” situation of mortgage borrowers. Therefore, the FHA streamline refinance does not include a cash-out option. If you wish to tap the equity you have built on your property, you can apply for other refinance programs instead.
If you are eligible, this program makes it painlessly easy to replace a disadvantageous mortgage with a better one. However, the streamlined vetting process does not guarantee that you will be a more responsible borrower. Set higher standards for yourself to truly put yourself into a more favorable financial situation after you qualified, so this privilege does not go to waste.