How Does Streamline Refinancing Work

by Patrick O. in Maricopa, AZ, Billiam in Darlington, MD, Alex in Lake Forest...

Ask Kate how does streamline refinancing work: Four homeowners ask about streamline refinances for 1) FHA loans, 2) rental properties with conventional Freddie Mac loans, 3) borrowers with low credit scores, 4) homeowners without verifiable income. Find ideas to push through streamline refis such as cross-collateralization. Keep in mind, rarely does a streamline refi eliminate closing costs.


Question 1: FHA Streamline Loan Requirements

By Patrick O. from Maricopa, AZ

Hello Kate, Do you know of any lenders that are currently following FHA's rules for a FHA streamline loan? I currently have FHA financing. I would like to streamline refi my mortgage. Have had the loan for over 14 months with on-time payments.

But when trying to have them do a no-credit check, no-employment-verification, no-income-verification, no appraisal, no cash-back, they all seem to throw in company overlays. Is there anyone out there that will do real FHA streamline refinancing? Need help. Would like to lower our current 5.5% loan down to at least 3.75%. Thanks, Patrick O.

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: FHA Streamline Loan Requirements

Hi Patrick,

FHA eliminates many traditional requirements in their streamline guidelines but tells lenders that they are free to add back in the requirements.

Take for example the property appraisal. Although it is not an FHA streamline requirement, lenders are told they can require them. The same holds true for property repairs and credit reports.

FHA also says,
"Except for credit qualifying streamline refinances, FHA does not require a credit report. The lender, however, may require this as part of its credit policy."
So you can see although FHA does not require a credit report, they make two exceptions. One is for "credit qualifying streamline refinances" and the other at the will of the lender.

You asked for a list of lenders who do not overlay FHA loan requirements but I can't possibly account for companies' individual overlays and guidelines. I wish I could but the second I'd make the list, banks and even FHA would make wholesale changes.

My advice is to interview lenders with specific questions like,
"What will you be looking for in my loan file that would require a credit report, employment and income verification, or appraisal?"
Once they have answered you, let them know you are making note of their response and expect the information to be accurate.

Now go here for general FHA Streamline Refinance guidelines.

In addition, you will be interested in these details from President Obama regarding reduced mortgage insurance, effective June 2012: FHA Streamline Refinancing News.

Best wishes shopping for your FHA streamline loan,

Ask Kate

Question 2: Streamline Refi on Investment Property with Freddie Mac Loan

By Billiam from Darlington, MD

Kate, I have an interesting situation. My wife and I have an investment property that is currently worth $625k and we owe $260k. It is rented out for $3200. The principal, interest, taxes, and insurance (PITI) of the mortgage payment is $2800 at 5.25%.

We want to refi the loan to a market rate where the payment will be $1925 (PITI). Our credit is perfect, but our income is too low to qualify to refi. Our primary residence is worth $800k and we owe $290k.

Our loan is a Freddie Mac that we obtained back when we occupied the home. We just moved a few years ago to a new house.

Wells Fargo tells me that we could do a streamline refinance if we owner-occupied the home. But they will not do that since it is considered non-owner-occupied. Personally, I cannot believe this. Anything we can do?

Is this the scenario that Harp 3 would address?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Streamline Refi on Investment Property with Freddie Mac Loan

Hi Billiam,

Refinancing rental property has never been a cinch. Streamline refinancing a rental property is even more difficult.

Unfortunately, Wells has the right to create these guidelines. So I suggest shopping for some type of low-documentation loan program through other lenders. But I want to caution that you will most likely be paying a higher mortgage rate and fees due to the loan's parameters.

Another idea is to entice Wells into streamline refinancing your rental property by offering cross-collateralization of your owner-occupied house. There are risks that accompany this decison. If you could not make your mortgage payment for any reason, Wells could foreclose on both properties.

Think it over carefully before entering into such an agreement. Go here for more details: Refinancing With Additional Collateral by Cindy from Honolulu, HI.

You also asked if the HARP 3 refinance program will include rental properties. From reading the different proposals, descriptions seem to lean toward owner-occupied properties. But as of August 2012, these are only proposals with no actual guidelines set in stone. Read the different proposed versions of HARP 3 here: Best wishes for refinancing your rental property,

Ask Kate

Question 3: Streamline Refi Clarification

Kate, Refi for dummies please! I have a friend that is trying to refi his home and has been told that his credit score isn't strong enough. He was advised to go streamline with no explanation of what it is exactly. Please help.

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Ask Kate answers: Streamline Refi Clarification

The mortgage loan your friend applied for may well be the FHA Streamline Refinance. But there are also streamline refinances for VA (Veteran home loans) as well as conventional. HARP 2 loans are a form of streamlining but for homeowners who have less than 20% equity.

The main goal of streamline refis is to reduce paperwork, including the need for an appraisal. Many times, verifications for income and employment are eliminated. But a near-perfect mortgage payment history is usually required.

Depending on the particular bank, streamline refinancing may be near to useless. For example, one bank I worked for offered a streamline refinance that was pretty weak. One paystub instead of two and the same for bank statements was the only punch it packed.

Your friend should also know that streamline refinancing rarely reduces cost. So getting a good faith estimate is a must because some streamlined programs end up requiring cash-at-closing from the homeowner. Protect yourself by understanding closing costs at How to Reduce Mortgage Refinancing Cost.

Best wishes,

Ask Kate

Question 4: Streamline Loan Question

By Alex from Lake Forest

Kate, Can you qualify for a streamline loan with only cash reserves and no income?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Streamline Loan Question

Hi Alex,

Well, it depends. What type of program are you thinking of - FHA, VA, conventional, or even HARP 2? Many guidelines to these loan programs are specific to the particular lender.

But to answer your question, some streamlines do not require income verification, especially with a strong mortgage payment history, high credit scores, and ample cash-reserves.

Best wishes,

Ask Kate

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Cross Collateralization of House in Alabama
by: Bil O. from Montgomery, AL

Hello KATE 'question',

I have a house in Alabama, fully paid. I live in the Philippines with my wife. How or can I use my house as collateral for a loan? Thank You.

Hi Bil, Kate here...

In a rip-roaring financial market, when banks have money to toss about, you'll hear more about cross collateralization loans. But in tighter markets, those offers may be more scarce.

Here's how they work. In addition to the traditional bank lien on the property you are buying, the lender would simultaneously lien your free-and-clear property, in lieu of a larger down payment.

There are pros and cons that you should carefully ponder before moving forward. So read my answer to Billiam (see above).

You will also find more information on the risk of cross collateralization in my answer to Cindy found at Four Mortgage Refinancing Questions.

Best wishes, Kate

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