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The Federal Housing Administration (FHA) has
permitted streamline refinances on insured mortgages
since the early 1980's. The streamline refers
only to the amount of documentation and underwriting
that needs to be performed by the lender, and
does not mean that there are no costs involved
in the transaction. The basic requirements of
a streamline refinance are:
The mortgage to be refinanced must already be
FHA insured The mortgage to be refinanced should
be current (not delinquent). The refinance is
to result in a lowering of the borrower's monthly
principal and interest payments. No cash may be
taken out on mortgages refinanced using the streamline
refinance process.
Lenders may offer streamline refinances in several
ways. Some lenders offer "no cost" refinances
(actually, no out-of-pocket expenses to the borrower)
by charging a higher rate of interest on the new
loan than if the borrower financed or paid the
closing costs in cash. From this premium, the
lender pays any closing costs that are incurred
on the transaction.
Lenders may offer streamline refinances and include
the closing costs into the new mortgage amount.
This can only be done if there is sufficient equity
in the property, as determined by an appraisal.
Streamline refinances can also be done without
appraisals, but the new loan amount cannot exceed
what is currently owed, i.e., closing costs may
not be added to the new mortgage with those costs
either be paid in cash or through the premium
rate as described above. Investment properties
(properties in which the borrower does not reside
in as his or her principal residence) may only
be refinanced without an appraisal and, thus,
closing costs may not be included in the new mortgage
amount.
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