Streamline refinance refers to the refinance of an existing FHA-insured mortgage requiring limited borrower credit documentation and underwriting. Streamline refinances are available under credit qualifying and non-credit qualifying options. "Streamline refinance" refers only to the amount of documentation and underwriting that the lender must perform, and does not mean that there are no costs involved in the transaction. The basic requirements of a streamline refinance are:
- The mortgage to be refinanced must already be FHA insured.
- The mortgage to be refinanced must be current (not delinquent).
- The refinance results in a net tangible benefit to the borrower. The definition of net tangible benefit varies based on the type of loan being refinanced, and the interest rate and/or term of the new loan.
- Cash in excess of $500 may not be taken out on mortgages refinanced using the streamline refinance process.
- Investment Properties are only eligible for FHA insurance if the borrower is a HUD-approved Nonprofit Borrower, or a state and local government agency, or an Instrumentality of Government.
Lenders may offer streamline refinances in several ways. Some lenders offer "no cost" refinances (actually, no out-of-pocket expenses to the borrower) by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the lender pays any closing costs that are incurred on the transaction.
Detailed instructions to the lenders are contained in HUD Handbook 4000.1, II.A.8.
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