In many ways the FHA streamline is all about the best refinance option available. You do not have to provide a brand new credit file, a new evaluation or even new income verification. Instead, the refinance loans relies entirely on all the application information that you submitted for your original FHA loan. The lender simply repackages your program and gives you a new loan with a lower rate of interest. However, just because the streamline process is paperwork-friendly doesn’t mean it’s ideal for everybody. There are drawbacks to a FHA streamline loan.
No Money Out
Because most Americans take some type of balance on credit cards, credit lines or auto loans, it’s normal to refinance for the purpose of cashing out on a few of your home equity to pay off other debt. By way of instance, if you have $20,000 in credit card debt then you can typically refinance, then pull out $20,000 in cash from the equity in your house, and use the money to repay your credit cards. This increases your mortgage loan amount, but mortgage debt is much better than credit card debt because the interest is lower and it can help save you money. This cash-out scenario is not possible under an FHA streamline loan. HUD (the U.S. Department of Housing and Urban Development) doesn’t allow a refinancing homeowner to withdraw any of their home equity.
No Default
Another drawback of this FHA streamline loan is that you cannot streamline if you are not completely current on your existing mortgage loan. So, even when you are just 15 days behind on your present mortgage, then you have to bring the mortgage current before you may proceed. Because many Americans live paycheck to paycheck, it can be tricky to proceed a mortgage payment 15 times ahead. Many traditional private lenders will allow a refinance even when you are behind on your existing mortgage, but HUD won’t allow it for an FHA refinance.
Closing Prices
The streamline process is simple, but it is not free. Closing prices for an FHA streamline refinance can quickly reach several thousand dollars. You’ve got to pay your agent or creditor a payment. You’ve got to pay recording fees associated with the new mortgage documents. You’ve got to pay the name company a administrative fee. All of this can accumulate fast, which means you want a fairly significant rate of interest drop if you are going to justify the closing cost expense.