A streamline refinance is a program that makes refinancing easier and more accessible.
When you refinance your mortgage, you ideally replace your current home loan with a new mortgage that has more favorable terms. Most homeowners aim to reduce their monthly payments by securing a lower interest rate or extending the loan term. Other people may choose to refinance to consolidate debt.
There are three main streamline refi programs that are government-backed.
This program is officially known as the Interest Rate Reduction Refinance Loan or IRRRL. This program is available to veterans who initially financed their homes through a VA-backed loan.
There is no appraisal or credit underwriting. Unfortunately, there is no cash-out refinance option. In other words, you cannot take cash out of your home. However, you can defer your refinance closing costs by rolling them into your new loan. This is known as a “no money out of pocket” refinance.
This is available to homeowners who initially financed their homes with a USDA loan. In 2017, this program became available in all 50 states.
There is no appraisal required unless the direct borrower received subsidy during their loan term. There is no home inspection of debt-to-income ratio calculation. Additionally, no credit review is required for homeowners who are current on their mortgage for the past 12 months.
The FHA Streamline Refinance program is available to homeowners who initially financed their homes with an FHA or Federal Housing Administration loan. Unlike a traditional refinance, FHA Streamline Refinance requires minimal credit documentation and underwriting.
Some lenders offer a “no cost” or “no money out of pocket” refinance by charging a higher interest rate on the new loan. The lender would then pay all closing costs incurred on the transaction. According to the U.S. Department of Housing and Urban Development or HUD, FHA does not allow lenders to roll closing costs into the new mortgage.
What is remarkable about the FHA Streamline Refinance program is that it does not usually require an appraisal nor verification of income and assets.
One main benefit of a streamline refinance program is that qualifying for a refinance is much simpler, faster, and less stressful. The homeowner does not typically need to provide documentation of income and assets. Additionally, there are minimal credit requirements and usually no home appraisal necessary.
To qualify for these programs, you will likely need to be current, not delinquent, on your existing mortgage for at least 12 months.
These programs are not available to all consumers. For example, you must have an existing FHA loan to qualify for FHA streamline refinance. The same is true for VA and USDA refinance programs.
One customary eligibility requirement is that the refinance must clearly benefit the borrower. Additionally, most programs do not permit taking cash out of your home equity.
Finally, you may need to pay closing costs again, which may or may not be rolled into the new mortgage amount depending on the refinance program.