We help homeowners in a wide variety of situations. Not everyone we counsel is behind on mortgage payments, but they may have some other issue that is causing them concern.
The Federal Housing Administration (FHA) Short Refinance program was one program for people who owed 15% or more on their mortgage than the home was worth. This plan helped homeowners refinance into a new mortgage loan that was more affordable and in line with the value of their homes. The new mortgage was FHA-insured, and the amount owed was set to no more than 97¾% of the home’s value.
While this program ended in 2016, it’s good to know that HUD-approved housing counselors kept current with available options to help borrowers and continue to understand mortgage solutions that help homeowners avoid foreclosure.
Current Housing Assistance Programs
Anyone thinking about an FHA Streamline refi could benefit from HUD-approved housing counseling.
A counselor can review your options for any current programs available and tell you what you need to do to become eligible for the best options for you.
Also, bear in mind that the now-defunct FHA Short Refinance Program and the current FHA Streamline Refinance are federal programs. There may be more options at the state and local levels depending on where your property is located.
A HUD-certified housing counselor can make sure you’re up to speed on any local programs that might help you preserve your homeownership or transition to a new mortgage loan.
Now, FHA offers a new refinancing option called FHA Streamline Refinance. This option refinances an FHA loan into a new loan with lower payments, a fixed rate, or lower interest rates.
FHA Streamline Requirements
Under the current FHA Streamline Refinance program, borrowers must meet a different set of basic requirements:
- Mortgage must be FHA-insured
- Mortgage must not be delinquent
- The borrower must benefit from the refinance, either through a lower interest rate, new loan term, lower monthly payment, or other tangible benefit
- Borrowers must not take out cash in excess of $500 through financing
- Only HUD-approved Nonprofit Borrowers may refinance “investment properties”
HUD has detailed guidelines for lenders offering a Streamline refinance. In some cases, the lender may cover closing costs by raising the interest rate. While the borrower does pay higher interest, there are no out-of-pocket costs to refinance; this is one way the refinancing process might be “streamlined” under the current program.
FHA Streamline Refinance
The FHA Streamline refinance is for borrowers with an FHA loan who want to get lower monthly payments and interest rates.
The process is meant to be quick and simple, with limited documentation and credit checks, to streamline the process. Home appraisals may not be needed, and sometimes income verification is waived, leading to faster approvals.
The biggest difference is that the FHA Streamline is for FHA loans, while the Short Refinance Program is for non-government-backed loans.
If you’re thinking about FHA Streamline, understand that you have to pay closing costs and mortgage insurance premiums. A HUD-certified housing counselor can go over the full requirements to help you determine if this kind of refinance is a smart move for you.
FHA Loan after Short Sale
For current borrowers who want to get an FHA loan after a short sale, there are guidelines spelled out in HUD 4000.1, the FHA Single Family Loan program handbook.
These guidelines define a short sale as any sale of real estate that generates fewer proceeds than the amount owed on the property, and the lender agrees to forgive any deficient balance owed.
Under current rules, a borrower must wait 3 years to seek an FHA loan after completing a short sale, but exceptions may apply, so it’s good to seek counseling if you’ve had a short sale in the past and are ready to re-enter homeownership with an FHA loan.
If you do apply for an FHA loan after a short sale, let us help. There will be paperwork and application requirements, including written explanations of any problems that appear on your credit report. We can help you navigate all of these requirements.
We can also go over any other options you may have to find the best solution for your situation; call us today for free, confidential help.
If you have questions about the FHA alternatives, you can talk to our certified housing counselor for free. Contact us today to get started.
Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.
