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FHA Streamline Loans, 'Cash Back' and Closing Costs

FHA Streamline refinancing is an excellent way to lower your mortgage payments on an existing FHA loan. Streamline refinancing is probably the most hassle-free loan product you’ll ever apply for, as long as you understand the rules and requirements of the FHA Streamline application process. The requirements are simple. You must have an FHA loan which is current—no late payments or delinquency notices for at least a year. The refinancing must result in lower mortgage and interest payments. The refinancing process requires verification of employment, but you don’t need to show proof of income as with your original FHA loan.

IS THERE CASH BACK WITH FHA STREAMLINE LOANS?

In spite of some websites which advertise Streamline loans as a way to “get money for the kids’ college fund” or to set aside money in a savings account, there’s no cash-out option with FHA Streamline loans.

When you read more closely you see that the references to savings or college funds is tied to the extra money you have left over because the Streamline loan lowered your monthly bills. That’s never a bad thing, but it’s a different result than cash-out refinancing. The FHA’s stated purpose for Streamline loans is to lower the monthly payments.

CLOSING COSTS

Before you can get to those lower payments, you need to apply for the FHA-insured Streamline loan, be approved through a no-credit check process, and close the deal. To be approved for an FHA Streamline loan, your original mortgage must be at least six months old.

Once you’ve passed the approval process, you can proceed to closing time, when you’ll be required to pay closing costs. These costs can be explained by your loan officer and should be included in the terms of your loan. Closing costs become an issue depending on whether you choose a “no appraisal” streamline loan or opt to have your home re-appraised. No appraisal loans are good for those willing to pay the closing costs up front and out-of-pocket.

Some banks advertise a “no cost” refinancing loan. What “no cost” really means is that you are charged a higher interest rate to have the closing costs included into the mortgage loan. The lender handles the closing costs and gets a return from the higher interest rate.

When it comes to FHA Streamline loans, it’s important to remember the requirement that your payments and interest rates be lowered through the new loan. If you want to have the closing costs built into your loan, you must have the property reappraised. You can only roll the closing costs into your new FHA Streamline loan if there’s enough equity in the property to cover the additional amount.

FHA Streamline loans can help you get into a lower mortgage payment and free up money to save, pay off bills or start home improvement projects. If you’ve been paying on your current FHA mortgage for at least six months, ask your loan officer how an FHA Streamline refinance loan can lower your bills.