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Underwater FHA Loans Can Streamline Refinance

By: | January 21st, 2013

As the housing market continues to gain steam, many homeowners may find that they no longer have underwater mortgages. At the same time, it may take longer for other severely underwater homeowners to reach this point of gaining back equity. While the Home Affordable Refinance Program has received a lot publicity, some homeowners may feel left out since they do not have an eligible conventional loan. Many first time homeowners originally used FHA for financing when they purchased their home. With FHA, underwater FHA loans can also streamline refinance without the need of an appraisal.

The FHA streamline has been available for FHA mortgage holders for many years. In fact, HARP is designed to be similar to the streamline loan program. When refinancing with the FHA streamline, there is no appraisal needed as long as there is no cash taken out. This is not just a special refinance since these guidelines are available all of the time. Any FHA mortgage holder, whether underwater or not, can refinance with the streamline and will not need a credit history, employment or income documentation. Basically, FHA uses the homeowner’s mortgage payment history, which must be good, in order to base its decision. If the homeowner makes their payments on time, FHA feels there is no reason not to give them a better mortgage since they are already insuring the loan.

While any existing FHA loan can use the streamline product for refinancing, FHA is allowing those loans that were endorsed prior to June 1, 2009 to refinancing with lower upfront and annual mortgage insurance premiums. Until the end of 2013, FHA has reduced the upfront fee to .01% and the annual fee to .55%. This is being offered as an incentive for homeowners to refinance to lower FHA mortgage rates while they are available.

Many first time homeowners take advantage of using FHA loans because they offer benefits that do not come with conventional loans, such as assumption. The FHA streamline is one of those benefits that has been available and will continue to be available for homeowners who choose FHA for financing. While you do not have to be underwater to obtain the streamline loan, those who are underwater have the peace of mind knowing that they, too, have a way to refinance to a better mortgage that will save them money.

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